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we deliver these benefits through industry leading ultra-low power customer programmable soc semiconductor solutions , embedded software , and algorithm solutions for always-on voice and sensor processing , and enhanced visual experiences . in addition to our delivering our own semiconductor solutions , we have an ip business that licenses our fpga technology for use in other semiconductor companies socs . we are also a fabless semiconductor company that designs , markets , and supports primarily silicon solutions , as well as field programmable gate arrays , or fpgas , software drivers , associated design software and programming hardware , and , efpga ip called arcticpro . our solutions are created from our new silicon platforms including our eos , arcticlink® iii , polarpro®3 , polarpro ii , polarpro , and eclipse ii products ( which together comprise our new product category ) . our mature products include primarily pasic®3 and quickram® as well as programming hardware and design software . our solutions typically fall into one of three categories : sensor processing , display and visual enhancement , and smart connectivity . our solutions include a unique combination of our silicon platforms , ip , custom logic , software drivers , and in some cases , firmware , and application software . all of our silicon platforms are standard devices and must be programmed to be effective in a system . our ips range from that those enable always-on context-aware sensor applications , such as our ffe , and our sensor manager and communications manager technologies , to ip that ( i ) improves multimedia content , such as our vee technology , and dpo ; and ( ii ) implements commonly used mobile system interfaces , such as lvds , mipi , and sdio . we provide complete solutions by first architecting the solution jointly with our customer 's or ecosystem partner 's engineering group , selecting the appropriate solution platform and ips , providing custom logic , integrating the logic , programming the device with the ips and or firmware , providing software drivers or application software required for the customer 's application , and supporting the customer on-site during integration , verification and testing . we also work with mobile processor manufacturers , sensor manufacturers , and or voice recognition , sensor fusion and context awareness algorithm developers in the development of reference designs , qvls , or “ catalog ” solutions . through reference designs that incorporate our solutions , we believe mobile processor manufacturers , sensor manufacturers , and sensor algorithm companies can expand the served available market for their respective products . furthermore , should a solution development for a processor manufacturer or sensor and or sensor algorithm company be applicable to a set of common oems or odms , we can amortize our r & d investment over that set of oems/odms . we call this type of solution a catalog solution and we are placing a greater emphasis on developing and marketing these types of solutions . in order to grow our revenue from its current level , we depend upon increased revenue from our new products including existing new product platforms , efpga ip and platforms currently in development . we expect our business growth to be driven by silicon solutions and efpga ip and therefore our solutions revenue growth needs to be strong enough to enable us to sustain profitability while we continue to invest in the development , sales and marketing of our new solution platforms and ips . the gross margin associated with our solutions is generally lower than the gross margin of our fpga products , which is primarily due to the price sensitive nature of the higher volume mobile consumer opportunities that we are pursuing with our solutions . the gross margin from our efpga ip licensing is generally higher than the gross margins of our semiconductor device due to the nature of ip having a lower cost of sales . in order to grow and diversify our revenue from its current level , we are partnering with tier 1 foundries to license our efpga software tool in addition to the sale of our new and existing products . we are expecting revenue growth from efpga ip licensing starting in fiscal year 2017. we continue to seek to expand our revenue , including pursuing high-volume sales opportunities in our target market segments , by providing solutions incorporating our intellectual property , or industry standard interfaces . our industry is characterized by intense price competition and by lower margins as order volumes increase . while winning large volume sales 27 opportunities will increase our revenue , we believe these opportunities may decrease our gross profit as a percentage of revenue . during 2016 , we generated total revenue of $ 11.4 million which represents a 40 % decrease from 2015 . our new product revenue during 2016 was $ 5.6 million , which represents a 53 % decrease from 2015 while our mature product revenue during 2016 was $ 5.8 million , which represents a 16 % decrease from 2015 . we shipped our new products into four of our targeted mobile market segments : smartphones , wearables , mobile enterprise , and tablets . overall , we reported a net loss of $ 19.1 million for 2016 compared to a net loss of $ 17.8 million for 2015. we have experienced net losses in the recent years and expect such losses to continue through at least the year ending december 31 , 2017 as we continue to develop new products , applications and technologies . whether we can achieve cash flow levels sufficient to support our operations can not be accurately predicted . story_separator_special_tag determining the appropriate fair value model and calculating the fair value of stock-based awards at the date of grant require judgment . we use the black-scholes option pricing model to estimate the fair value of employee stock options and rights to purchase shares under the company 's 2009 stock plan and 2009 employee stock purchase plan , or espp , consistent with the provisions of the amended authoritative guidance . this fair value is expensed on a straight-line basis over the requisite service period of the award . using the black-scholes pricing model requires us to develop highly subjective assumptions including the expected term of awards , expected volatility of our stock , expected risk-free interest rate and expected dividend rate over the term of the award . our expected term of awards is based primarily on our historical experience with similar grants . our expected stock price volatility for both stock options and espp shares is based on the historic volatility of our stock , using the daily average of the opening and closing prices and measured using historical data appropriate for the expected term . the risk-free interest rate assumption approximates the risk-free interest rate of a treasury constant maturity bond with a maturity approximately equal to the expected term of the stock option or espp shares . in addition to the assumptions used in the black-scholes pricing model , the amended authoritative guidance requires that we recognize compensation expense only for awards ultimately expected to vest ; therefore we are required to develop an estimate of the historical pre-vest forfeiture experience and apply this to all stock-based awards . the fair value of restricted stock awards , or rsas , and restricted stock units , or rsus , is based on the closing price of our common stock on the date of grant . rsa and rsu awards which vest with service are expensed over the requisite service period . rsas and rsu awards which are expected to vest based on the achievement of a performance goal are expensed over the estimated vesting period . we regularly review the assumptions used to compute the fair value of our stock-based awards and we revise our assumptions as appropriate . in the event that assumptions used to compute the fair value of our stock-based awards are later determined to be inaccurate or if we change our assumptions significantly in future periods , stock-based compensation expense and our results of operations could be materially impacted . see note 10 to the consolidated financial statements . accounting for income taxes as part of the process of preparing our financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure together with assessing temporary differences resulting from different tax and accounting treatment of items , such as deferred revenue , allowance for doubtful accounts , the impact of equity awards , depreciation and amortization , and employee-related accruals . these differences result in deferred tax assets and liabilities , which are included on our balance sheets . we must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely , we must establish a valuation allowance . to the extent we establish a valuation allowance or increase this allowance in a period , we must include an expense within the tax provision in the statements of operations . significant management judgment is required in determining our provision for income taxes , deferred tax assets , liabilities and any valuation allowance recorded against our net deferred tax assets . our deferred tax assets , consisting primarily 29 of net operating loss carryforwards , amounted to $ 79.2 million , tax effected as of the end of 2016 . in evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise , we consider all available positive and negative evidence , including schedule reversals of deferred tax liabilities , uncertainty of projecting future taxable income and results of recent operations . as of january 1 , 2017 , we have federal and state income tax net operating loss ( nol ) carryforwards of approximately $ 148.7 million and $ 57.4 million , which will expire at various dates from 2017 through 2037. the company has research credit carryforwards of approximately $ 4.0 million for federal and $ 4.1 million for state income tax purposes as of january 1 , 2017 , if not utilized , the federal carryforwards will expire at various dates from 2018. the california credit can be carried forward indefinitely . we believe that it is more likely than not that the deferred tax assets and benefits from these federal and state nol and credit carryforwards will not be realized . in recognition of this risk , we have recorded a valuation allowance of $ 79.2 million , tax-effected , as of the end of 2016 , due to uncertainties related to our ability to utilize our u.s. deferred tax assets before they expire . 30 story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > as of the end of 2016 , our ability to utilize our u.s. deferred tax assets in future periods is uncertain and , accordingly , we have recorded a full valuation allowance against the related u.s. deferred tax assets . we will continue to assess the realizability of deferred tax assets in future periods . comparison of fiscal years 2015 and 2014 revenue . the table below sets forth the changes in revenue for fiscal year 2015 as compared to fiscal year 2014 ( in thousands , except percentage data ) : replace_table_token_11_th _ ( 1 ) for all periods presented : new products include all products manufactured on 180 nanometer or smaller semiconductor processes . mature products include all products produced on semiconductor processes larger than nanometers .
| results of operations the following table sets forth the percentage of revenue for certain items in our statements of operations for the periods indicated : replace_table_token_5_th 31 comparison of fiscal years 2016 and 2015 revenue . the table below sets forth the changes in revenue for fiscal year ended january 1 , 2017 , as compared to fiscal year ended january 3 , 2016 ( in thousands , except percentage data ) : replace_table_token_6_th _ ( 1 ) for all periods presented : new products include all products manufactured on 180 nanometer or smaller semiconductor processes . mature products include all products produced on semiconductor processes larger than 180 nanometers . the decrease in new product revenue in 2016 was primarily due to lower shipments to samsung which had designed our arcticlink iii vx product into its tablet platform and also due to lower shipments of connectivity products . in 2016 , shipments of arcticlink iii were $ 4.4 million compared to $ 8.3 million in 2015. revenue from connectivity products was $ 1.0 million in 2016 compared to $ 3.5 million in 2015. revenue generated from samsung accounted for 68 % of our new product revenue and 33 % of our total revenue in 2016. the decrease in mature product revenue is due primarily to decreased orders from our customers in the aerospace , test and instrumentation sectors . we anticipate that our revenue from tablets and mature products will continue to decline over time . gross profit . the table below sets forth the changes in gross profit for fiscal year 2016 as compared to fiscal year 2015 ( in thousands , except percentage data ) : replace_table_token_7_th the decrease in gross profit was primarily due to a reduction in sales of both new and matured products , which was due to fluctuations in end-customers ' revenue forecasts .
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the amendments in this asu should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to the amount of retained earnings as of the beginning of the period of adoption . this asu is not expected to have a significant impact on the company 's financial statements . in october 2016 , the fasb issued asu 2016-17 , consolidation ( topic 810 ) , which amends the consolidation guidance on how a reporting entity that is the single decision maker of a vie should treat indirect interests in the entity held through related parties that are under common control with the reporting story_separator_special_tag overview at september 30 , 2017 , we had total assets of $ 899.5 million , including net loans of $ 571.3 million and $ 239.7 million of investment and mortgage-backed securities , total deposits of $ 636.0 million and total stockholders ' equity of $ 136.2 million . the company conducts community banking activities by accepting deposits and making loans secured by properties located primarily in our market area . our lending products consist of residential mortgage loans , including loans for sale in the secondary market , along with commercial real estate , multi-family and construction loans . the company also originates commercial business and consumer loans in an effort to maintain strong customer relationships . despite the challenging current market and economic conditions , the company continues to maintain capital substantially in excess of regulatory requirements . this management 's discussion and analysis section is intended to assist in understanding the financial condition and results of operations of prudential bancorp . the results of operations of prudential bancorp are primarily dependent on the results of the bank . the information contained in this section should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements contained in item 8 of this annual report on form 10-k. critical accounting policies in reviewing and understanding financial information for prudential bancorp , you are encouraged to read and understand the significant accounting policies used in preparing our financial statements . these policies are described in note 2 of the notes to our consolidated financial statements included in item 8 hereof . the accounting and financial reporting policies of prudential bancorp conform to accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and to general practices within the banking industry . accordingly , the financial statements require certain estimates , judgments and assumptions , which are believed to be reasonable , based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities as well as contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented . the following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results . these policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods . allowance for loan losses . the allowance for loan losses is established through a provision for loan losses charged to expense . losses are charged against the allowance for loan losses when management believes that the collectability in full of the principal of a loan is unlikely . subsequent recoveries are added to the allowance . the allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairments based upon an evaluation of known and inherent losses in the loan portfolio that are both probable and reasonable to estimate . loan impairment is evaluated based on the fair value of collateral or estimated net realizable value . it is the policy of management to provide for losses on unidentified loans in its portfolio in addition to criticized and classified loans . 61 management monitors its allowance for loan losses at least quarterly and makes adjustments to the allowance through the provision for loan losses as economic conditions and other pertinent factors indicate . the quarterly review and adjustment of the qualitative factors employed in the allowance methodology and the updating of historic loss experience allow for timely reaction to emerging conditions and trends . in this context , a series of qualitative factors are used in a methodology as a measurement of how current circumstances are affecting the loan portfolio . included in these qualitative factors are : · levels of past due , classified , criticized and non-accrual loans , troubled debt restructurings and loan modifications ; · nature and volume of loans ; · changes in lending policies and procedures , underwriting standards , collections , charge-offs and recoveries and for commercial loans , the level of loans being approved with exceptions to lending policy ; · experience , ability and depth of management and staff ; · national and local economic and business conditions , including various market segments ; · quality of the company 's loan review system and degree of board oversight ; · concentrations of credit and changes in levels of such concentrations ; and · effect of external factors on the level of estimated credit losses in the current portfolio . in determining the allowance for loan losses , management has established both specific and general pooled allowances . values assigned to the qualitative factors and those developed from historic loss experience provide a dynamic basis for the calculation of reserve factors for both pass-rated loans ( general pooled allowance ) and for criticized and classified loans . the amount of the specific allowance is determined through a loan-by-loan analysis of certain large dollar commercial real estate loans . loans not individually reviewed are evaluated as a group using reserve factor percentages based on historical loss experience and the qualitative factors described above . story_separator_special_tag 63 u.s. gaap prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized . the company recognizes , when applicable , interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated income statement . assessment of uncertain tax positions requires careful consideration of the technical merits of a position based on management 's analysis of tax regulations and interpretations . significant judgment may be involved in the assessment of the tax position . recent accounting pronouncements information regarding recent accounting pronouncements is included in note 2 to the consolidated financial statements set forth in item 8 hereto . derivative financial instruments , contractual obligations and other off balance sheet arrangements . derivative financial instruments include futures , forwards , interest rate swaps , option contracts , and other financial instruments with similar characteristics . to remain competitive in our local lending area and to support the company 's asset/liability positioning , on occasion the bank enters into interest rate swaps contract to control its funding costs . in addition , these instruments involve , to varying degrees , elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition . commitments to extend credit generally have fixed expiration dates and may require additional collateral from the borrower if deemed necessary . commitments to extend credit are not recorded as an asset or liability by us until the instrument is exercised . commitments the following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit , lines of credit and undisbursed construction loans at september 30 , 2017. replace_table_token_27_th ( 1 ) the majority of available lines of credit consist of home equity lines of credit . 64 contractual cash obligations the following table summarizes our contractual cash obligations at september 30 , 2017. replace_table_token_28_th 65 average balances , net interest income , and yields earned and rates paid . the following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields , as well as the interest expense on average interest-bearing liabilities , expressed both in dollars and rates , and the net interest margin . all average balances are based on monthly balances . management does not believe that the monthly averages differ significantly from what the daily averages would be . replace_table_token_29_th ( 1 ) includes nonaccrual loans during the respective periods . calculated net of deferred fees and discounts , loans in process and allowance for loan losses . ( 2 ) equals net interest income divided by average interest-earning assets . ( 3 ) tax exempt yields have been adjusted to a tax-equivalent basis . 66 rate/volume analysis . the following table shows the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated . for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to ( 1 ) changes in rate , which is the change in rate multiplied by prior year volume , and ( 2 ) changes in volume , which is the change in volume multiplied by prior year rate . the combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume . replace_table_token_30_th comparison of financial condition at september 30 , 2017 and september 30 , 2016 at september 30 , 2017 , the company had total assets of $ 899.5 million , as compared to $ 559.5 million at september 30 , 2016 , an increase of $ 340.0 million or 60.8 % . the substantial majority of the growth was attributable to the acquisition of polonia bancorp . in addition to the acquisition , the company experienced growth in the balance of net loans receivable of $ 67.2 million or 19.5 % not related to the acquisition when compared to the $ 344.9 million balance of net loans receivable as of september 30 , 2016. total liabilities increased by $ 317.9 million to $ 763.4 million at september 30 , 2017 from $ 445.5 million at september 30 , 2016. as with the asset growth , the bulk of the liability growth resulted from the acquisition of polonia bancorp . in addition to the deposits assumed , the company assumed $ 56.0 million in fhlb advances in connection with the acquisition . in addition to the deposit growth resulting from the acquisition , the company experienced growth in deposits of $ 73.3 million or 18.8 % when compared the balance outstanding at september 30 , 2017 to the $ 389.2 million balance as of september 30 , 2016 . 67 total stockholders ' equity increased by $ 22.2 million to $ 136.2 million at september 30 , 2017 from $ 114.0 million at september 30 , 2016. this increase was primarily due to the issuance of common stock to the stockholders of polonia bancorp in connection with the acquisition . in addition , stockholders ' equity was affected by the termination of the bank 's employee stock ownership plan ( “ esop ” ) as of december 31 , 2016. a portion of the shares of common stock held in the esop 's suspense account as collateral for the loans to the esop was used to satisfy the esop 's indebtedness in full . as a result of the esop termination , the bank reduced its compensation expense by approximately $ 85,000 per quarter . in addition , stockholders ' equity was affected by a $ 1.6 million decline in the fair value of the company 's available-for-sale portfolio . results of operations for the years ended september 30 , 2017 , 2016 and 2015 story_separator_special_tag income .
| general . 2017 vs. 2016. for the fiscal year ended september 30 , 2017 , the company recognized net income of $ 2.8 million , or $ 0.32 per diluted share , as compared to net income of $ 2.7 million , or $ 0.36 per diluted share for the fiscal year ended september 30 , 2016. the fiscal year 2017 results included a one-time $ 2.5 million pre-tax expense related to the polonia bancorp acquisition as well as a $ 1.9 million non-cash pre-tax charge-off associated with a large lending relationship . increased profitability for the year ended september 30 , 2017 was primarily attributable to an increase in net interest income . 2016 vs 2015 . for the fiscal year ended september 30 , 2016 , the company recognized net income of $ 2.7 million , or $ 0.36 per diluted share , as compared to net income of $ 2.2 million , or $ 0.27 per diluted share for the fiscal year ended september 30 , 2015. increased profitability for the year ended september 30 , 2016 was primarily attributable to an increase in net interest income , gains recognized on the sale of mortgage-backed securities and a reduction in the provision for loan losses recorded during the fiscal 2016. in addition , the company reduced its non-interest expenses by approximately $ 1.9 million ( including the effect of expenses related to the merger with polonia ) resulting from a comprehensive expense reduction program which began at the beginning of the fiscal 2016. profitability for the year ended september 30 , 2016 primarily reflected the $ 2.1 million aggregate gain realized on the sale of three branch offices as well as a $ 138,000 gain on the sale of a sba loan , partially offset by a provision for loan losses of $ 735,000 and increased non-interest expense primarily related to salaries and benefits expense . net interest income .
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the expansion of our geographic presence beyond north america into the european market offers an opportunity to us as that market has historically had a low penetration of alternative collision parts . in addition to our ecp acquisition , we completed 20 acquisitions in north america in 2011 ( 17 wholesale businesses and 3 self service retail operations ) , which allowed us to increase our product offerings , to expand our geographic presence and to enter new markets . sources of revenue we report our revenue in two categories : ( i ) parts and services and ( ii ) other . our parts and services revenue is generated from the sale of vehicle replacement products and related services including ( i ) aftermarket , other new and refurbished products and ( ii ) recycled , remanufactured and related products and services . during the year ended december 31 , 2013 , sales of vehicle replacement products and services represented approximately 87 % of our consolidated sales . we sell the majority of our vehicle replacement products to collision and mechanical repair shops . our vehicle replacement products include sheet metal crash parts such as doors , hoods , and fenders ; bumper covers ; engines ; head and tail lamps ; and wheels . the demand for our products and services is influenced by several factors , including the number of vehicles in operation , the number of miles being driven , the frequency and severity of vehicle accidents , the age profile of vehicles in accidents , the availability and pricing of new oem parts , seasonal weather patterns and local weather conditions . additionally , automobile insurers exert significant influence over collision repair shops as to how an insured vehicle is repaired and the cost level of the products used in the repair process . accordingly , we consider automobile insurers to be key demand drivers of our products . while they are not our direct customers , we do provide insurance carriers services in an effort to promote the increased usage of alternative replacement products in the repair process . such services include the review of vehicle repair order estimates , direct quotation services to insurance company adjusters and an aftermarket parts quality and service assurance program . we neither charge a fee to the insurance carriers for these services nor adjust our pricing of products for our customers when we perform these services for insurance carriers . there is no standard price for many of our products , but rather a pricing structure that varies from day to day based upon such factors as product availability , quality , demand , new oem product prices , the age and mileage of the vehicle from which the part was obtained , competitor pricing and our product cost . in 2013 , revenue from other sources represented approximately 13 % of our consolidated sales . these other sources include scrap sales and sales of aluminum ingots and sows . we derive scrap metal from several sources , including vehicles that have been used in both our wholesale and self service recycling operations and from oems and other entities that contract with us for secure disposal of `` crush only '' vehicles . other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold . cost of goods sold our cost of goods sold for aftermarket products includes the price we pay for the parts , freight , and overhead costs related to the purchasing , warehousing and distribution of our inventory , including labor , facility and equipment costs and depreciation . our aftermarket products are acquired from a number of vendors . our cost of goods sold for refurbished products includes the price we pay for cores , freight , and costs to refurbish the parts , including direct and indirect labor , facility and equipment costs , depreciation and other overhead related to our refurbishing operations . 31 our cost of goods sold for recycled products includes the price we pay for the salvage vehicle and , where applicable , auction , towing and storage fees . prices for salvage vehicles may be impacted by a variety of factors , including the number of buyers competing to purchase the vehicles , the demand and pricing trends for used vehicles , the number of vehicles designated as “ total losses ” by insurance companies , the production level of new vehicles ( which provides the source from which salvage vehicles ultimately come ) , and the status of laws regulating bidders or exporters of salvage vehicles . due to changes relating to these factors , we have seen the prices we pay for salvage vehicles fluctuate over time . our cost of goods sold also includes labor and other costs we incur to acquire and dismantle such vehicles . our labor and labor-related costs related to acquisition and dismantling account for between 8 % and 10 % of our cost of goods sold for vehicles we dismantle . the acquisition and dismantling of salvage vehicles is a manual process and , as a result , energy costs are not material . our cost of goods sold for remanufactured products includes the price we pay for cores ; freight ; and costs to remanufacture the products , including direct and indirect labor , facility and equipment costs , depreciation and other overhead related to our remanufacturing operations . some of our salvage mechanical products are sold with a standard six-month warranty against defects . additionally , some of our remanufactured engines are sold with a standard three-year warranty against defects . we also provide a limited lifetime warranty for certain of our aftermarket products that is supported by certain of the suppliers of those products . we record the estimated warranty costs at the time of sale using historical warranty claims information to project future warranty claims activity and related expenses . story_separator_special_tag inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility 's inventory at expected selling prices , the assessment of which incorporates the sales probability based on a part 's days in stock and historical demand . the average cost to sales percentage is derived from each facility 's historical profitability for salvage vehicles . remanufactured inventory cost is based upon the price paid for cores , and also includes expenses incurred for freight , direct manufacturing costs and overhead related to our remanufacturing operations . for all inventory , carrying value is recorded at the lower of cost or market and is reduced to reflect current anticipated demand . if actual demand differs from our estimates , additional reductions to inventory carrying value would be necessary in the period such determination is made . business combinations we record our acquisitions under the purchase method of accounting , under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values . we utilize management estimates and , in some instances , independent third-party valuation firms to assist in determining the fair values of assets acquired , liabilities assumed and contingent consideration granted . such estimates and valuations require us to make significant assumptions , including projections of future events and operating performance . the purchase price allocation is subject to change during the measurement period , which is limited to one year subsequent to the acquisition date . for certain acquisitions , we may issue contingent consideration under which additional payments will be made to the former owners if specified future events occur or conditions are met , such as meeting profitability or earnings targets . each contingent consideration obligation is measured at the acquisition date fair value of the consideration , which is determined using the discounted probability-weighted expected cash flows . at each subsequent reporting period , we remeasure the liability at fair value and record any changes to the fair value through change in fair value of contingent consideration liabilities within other expense ( income ) on our consolidated statements of income . the fair value measurement of the liability is performed by our corporate accounting department using current information about key assumptions , with the input and oversight of our operational and executive management teams . each reporting period , we evaluate the performance of the business compared to our previous expectations , along with any changes to our future projections , and update the estimated cash flows accordingly . in addition , we consider changes to our cost of capital and changes to the probability of achieving the earnout payment targets when updating our discount rate on a quarterly basis . 33 increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates , variances between actual results achieved and projected results , changes in the projected results of the acquired business , or changes in our assessment of the probabilities surrounding the achievement of targets detailed in the respective agreements . as of december 31 , 2013 , we recorded $ 55.7 million of contingent consideration liabilities . of this amount , $ 49.7 million represents the maximum payment for the 2013 performance period related to our 2011 acquisition of ecp , which we expect to pay in the first quarter of 2014. goodwill impairment we are required to test our goodwill for impairment at least annually . when testing goodwill for impairment , we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceed the carrying value . if these assumptions or estimates change in the future , we may be required to record impairment charges for these assets . in response to changes in industry and market conditions , we may be required to strategically realign our resources and consider restructuring , disposing of , or otherwise exiting businesses , which could result in an impairment of goodwill . we are organized into three operating segments : wholesale—north america ; wholesale—europe ; and self service . we have also concluded that these three operating segments are reporting units for purposes of goodwill impairment testing in 2013 . we perform goodwill impairment tests annually in the fourth quarter and between annual tests whenever events indicate that an impairment may exist . during 2013 , we did not identify any events or changes in circumstances that would more likely than not reduce the fair value of our reporting units below their carrying amounts . therefore , we did not perform any impairment tests other than our annual test in the fourth quarter of 2013 . our goodwill would be considered impaired if the net book value of a reporting unit exceeded its estimated fair value . the fair value estimates are established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach . we believe that using two methods to determine fair value limits the chances of an unrepresentative valuation . as of december 31 , 2013 , we had a total of $ 1.9 billion in goodwill subject to future impairment tests . if we were required to recognize goodwill impairments , we would report those impairment losses as part of our operating results . we determined that no adjustments were necessary when we performed our annual impairment testing in the fourth quarter of 2013 . a 25 % decrease in the fair value estimates of the reporting units in the annual impairment test would not have changed this determination , and each of the reporting units had a substantial excess of fair value over carrying value .
| overview we provide replacement parts , components and systems needed to repair cars and trucks . buyers of vehicle replacement products have the option to purchase from primarily five sources : new products produced by original equipment manufacturers ( `` oems '' ) , which are commonly known as oem products ; new products produced by companies other than the oems , which are sometimes referred to as aftermarket products ; recycled products obtained from salvage vehicles ; used products that have been refurbished ; and used products that have been remanufactured . we distribute a variety of products to collision and mechanical repair shops , including aftermarket collision and mechanical products , recycled collision and mechanical products , refurbished collision products such as wheels , bumper covers and lights , and remanufactured engines . collectively , we refer to these products as alternative parts because they are not new oem products . we are the nation 's largest provider of alternative vehicle collision replacement products and a leading provider of alternative vehicle mechanical replacement products , with our sales , processing , and distribution facilities reaching most major markets in the united states . our wholesale operations also reach most major markets in canada . we are a leading provider of alternative vehicle replacement products in the united kingdom , and in the second quarter of 2013 , we expanded our operations into continental europe through the acquisition of sator , a leading distributor of automotive aftermarket products in the benelux region . in addition to our wholesale operations , we operate self service retail facilities across the u.s. that sell recycled automotive products . we have organized our businesses into three operating segments : wholesale - north america ; wholesale - europe ; and self service . we aggregate our north american operating segments ( wholesale - north america and self service ) into one reportable segment , resulting in two reportable segments : north america and europe .
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the $ 25.0 million milestone payment received during 2012 in connection with the fda 's approval of taliglucerase alfa in the united states was considered to be a substantive milestone for purposes of revenue recognition and , accordingly , was recorded as revenue during the period in which the milestone was achieved . 2. in october 2015 the company entered into the following agreements : amended pfizer agreement - pursuant to the amendment , the company granted pfizer an exclusive license in the entire world , including israel but excluding brazil . pfizer acquired all the information , knowledge and permission to manufacture and sell elelyso . f- 13 protalix biotherapeutics , inc. notes to consolidated financial statements note 2 - agreements with pfizer ( continued ) : protalix also agreed to provide pfizer with : a. manufacturing and supply of the drug substance for its incorporation into the licensed product in consideration of an agreed price per unit . b. assistance in arranging for the manufacture of the drug substance by pfizer or by alternative supplier chosen by pfizer in consideration of an agreed hourly rate plus reimbursement of expenses . stock purchase agreement - the company issued 5,649,079 shares of common stock to pfizer . promissory note – as of the date of the amendment , the story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis , particularly with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read “ risk factors ” in item 1a of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . story_separator_special_tag we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . functional currency the currency of the primary economic environment in which our operations are conducted is the u.s. dollar . most of our revenues are derived in dollars . in addition , most of our expenses and capital expenditures are incurred in dollars , and the major source of our financing has been provided in dollars . revenues until we entered into the amended pfizer agreement , our sole source of revenues came from sales of taliglucerase alfa pursuant to our license with pfizer , our sales of taliglucerase alfa in israel and brazil and from milestone payments under the pfizer agreement . following the entry into the amended pfizer agreement , our primary source of revenues will be our sales of taliglucerase alfa in brazil . we recognize revenue when the earnings process is complete , which is when revenue is realized or realizable and earned , there is persuasive evidence a revenue arrangement exists , delivery of goods or services has occurred , the sales price is fixed or determinable and collectability is reasonably assured . we recognized revenue from milestone payments received pursuant to the pfizer agreement in accordance with guidance regarding revenue recognition and accounting for revenue arrangements with multiple deliverables . pursuant to this guidance , we determined whether our arrangement with pfizer involves multiple revenue-generating deliverables that should be accounted for as a combined unit of accounting or separate units of accounting for revenue recognition purposes . if we determined that there are multiple units of accounting , the consideration from the arrangement is allocated among the separate units based on a relative fair value allocation . if the arrangement represents a single unit of accounting , the revenue is recognized over the performance obligation period . as the arrangement with pfizer required our continued involvement with respect to the proposed commercialization of taliglucerase alfa , the non-refundable , up-front license payments we received from pfizer to date have been deferred and recognized over the related performance period . for this purpose , we estimated the performance period of 14 years based on the date that the last relevant patent relating to taliglucerase alfa expires . 54 under the terms and conditions of the initial pfizer agreement , we were entitled to 40 % of the net profits or loss from sales of taliglucerase alfa by pfizer and reimbursement of our certain related expenses we incur in connection with pfizer 's sales ( other than those related to sales in israel and brazil ) . we recognized our share of net profit or loss under the initial pfizer agreement ( prior to its amendment ) based on reports we receive from pfizer summarizing the results of the collaborative activities under the former agreement for the applicable period . under the terms of the initial pfizer agreement , for its subsidiaries operating outside the united states , financial information is included based on the fiscal year ending november 30 , while financial information for the u.s. entity is included based on the fiscal year ending december 31. we recognize revenues received from the sale of a product when the sales price is fixed or determinable and collectability is reasonably assured . the revenues represent our cost with respect to the product sold . we recognize net product revenue from our sales of elelyso in israel when persuasive evidence of an arrangement exists , the product has been delivered to the customer , title and risk of loss have passed to the customer , the price to the buyer is fixed or determinable and collection from the customer is reasonably assured . story_separator_special_tag any failure or delay in completing clinical trials , or in obtaining regulatory approvals , could cause a delay in generating product revenue and cause our research and development expense to increase and , in turn , have a material adverse effect on our operations . due to the factors set forth above , we are not able to estimate with any certainty when we would recognize any net cash inflows from our projects . see “ risk factors—clinical trials are very expensive , time-consuming and difficult to design and implement and may result in unforeseen costs which may have a material adverse effect on our business , results of operations and financial condition. ” share-based compensation the discussion below regarding share-based compensation relates to our share-based compensation . in accordance with the guidance , we record the benefit of any grant to a non-employee and remeasure the benefit in any future vesting period for the unvested portion of the grants , as applicable . in addition , we use the straight-line accounting method for recording the benefit of the entire grant , unlike the graded method we use to record grants made to employees . we measure share-based compensation cost for all share-based awards at the fair value on the grant date and recognition of share-based compensation over the service period for awards that we expect will vest . the fair value of stock options is determined based on the number of shares granted and the price of our ordinary shares , and calculated based on the black-scholes valuation model . we recognize such value as expense over the service period , net of estimated forfeitures , using the accelerated method . the guidance requires companies to estimate the expected term of the option rather than simply using the contractual term of an option . because of lack of data on past option exercises by employees , the expected term of the options could not be based on historic exercise patterns . accordingly , we adopted the simplified method , according to which companies may calculate the expected term as the average between the vesting date and the expiration date , assuming the option was granted as a “ plain vanilla ” option . 56 in performing the valuation , we assumed an expected 0 % dividend yield in the previous years and in the next years . we do not have a dividend policy and given the lack of profitability , dividends are not expected in the foreseeable future , if at all . the guidance stipulates a number of factors that should be considered when estimating the expected volatility , including the implied volatility of traded options , historical volatility and the period that the shares of the company are being publicly traded . the risk-free interest rate used in the valuation of the options is based on the implied yield of u.s. federal reserve zero–coupon government bonds . the remaining term of the bonds used for each valuation was equal to the expected term of the grant . this methodology has been applied to all grants valued by us . the guidance requires the use of a risk–free interest rate based on the implied yield currently available on zero–coupon government issues of the country in whose currency the exercise price is expressed , with a remaining term equal to the expected life of the option being valued . this requirement has been applied for all grants valued as part of this report . convertible notes all outstanding convertible notes are accounted for using the guidance set forth in the financial accounting standards board , or fasb , accounting standards codification ( asc ) 815 requiring that we determine whether the embedded conversion option must be separated and accounted for separately . asc 470-20 regarding debt with conversion and other options requires the issuer of a convertible debt instrument that may be settled in cash upon conversion to separately account for the liability ( debt ) and equity ( conversion option ) components of the instrument in a manner that reflects the issuer 's nonconvertible debt borrowing rate . we account for the 4.5 % convertible notes as liability , on an aggregated basis , in their entirety . the conversion feature for our 7.5 % convertible notes is accounted for as a derivative which is bifurcated from the debt host contract and is measured at fair value through the statement of operations . the debt discount and debt issuance costs regarding the issuance of 4.5 % convertible notes are deferred and amortized over the applicable convertible period ( 5 years ) . issuance costs regarding the issuance of our 7.5 % convertible notes were allocated to the liability , equity component , derivative and shares of common stock based on their relative fair values . issuance costs that were allocated to liability will be amortized using the effective interest rate , other than issuance costs that were allocated to derivative , which were expensed immediately . year ended december 31 , 2016 compared to the year ended december 31 , 2015 revenues we recorded revenues of $ 9.2 million for the year ended december 31 , 2016 , an increase of approximately $ 4.8 million , or 111 % , compared to revenues of $ 4.4 million for the year ended december 31 , 2015. revenues represent products sold in brazil and drug substance sold to pfizer . the increase is mainly due to an increase of $ 4.8 million of drug substance sold to pfizer .
| overview we are a biopharmaceutical company focused on the development and commercialization of recombinant therapeutic proteins based on our proprietary procellex ® system . we developed our first commercial drug product , elelyso ® , using our procellex system and we are now focused on utilizing the system to develop a pipeline of proprietary , clinically superior versions of recombinant therapeutic proteins that primarily target large , established pharmaceutical markets and that , in most cases , rely upon known biological mechanisms of action . with our experience to date , we believe procellex will enable us to develop additional proprietary recombinant proteins that are therapeutically superior to existing recombinant proteins currently marketed for the same indications . we are now also applying the unique properties of our procellex system for the oral delivery of therapeutic proteins . on may 1 , 2012 , the fda approved for sale our first commercial product , taliglucerase alfa for injection , an ert for the long-term treatment of adult patients with a confirmed diagnosis of type 1 gaucher disease . subsequently , taliglucerase alfa was approved for marketing by the regulatory authorities of other countries . taliglucerase alfa is called alfataliglicerase in brazil and certain other latin american countries , where it is marketed under the name uplyso tm . taliglucerase alfa is marketed under the name elelyso in other territories . since its approval by the fda , taliglucerase alfa has been marketed mainly in the united states by pfizer , as provided in the pfizer agreement . in october 2015 , we entered into the amended pfizer agreement which amends and restates the pfizer agreement in its entirety . pursuant to the amended pfizer agreement , we sold to pfizer our share in the collaboration created under the initial pfizer agreement for the commercialization of elelyso in exchange for a cash payment equal to $ 36.0 million .
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traditionally , local merchants have tried to reach consumers and generate sales through a variety of methods , including online advertising , the yellow pages , direct mail , newspaper , radio , television , and promotions . by bringing the brick and mortar world of local commerce onto the internet , groupon is helping local merchants to attract customers and sell goods and services . we provide consumers with savings and help them discover what to do , eat , see and buy and where to travel . current and potential customers are able to access our deal offerings directly through our websites , mobile platforms and emails and may also access our offerings indirectly using search engines . we offer deals in three primary categories : local deals ( `` local '' ) , groupon goods ( `` goods '' ) and groupon getaways ( `` travel '' ) . in our goods category , through which we offer deals on merchandise , we often act as the merchant of record , particularly for deals in north america and for deals in emea , which is comprised of europe , middle east and africa , beginning in september 2013. our revenue from deals where we act as the third party marketing agent is the purchase price paid by the customer for a groupon voucher ( `` groupon '' ) less an agreed upon portion of the purchase price paid to the featured merchants , excluding applicable taxes and net of estimated refunds for which the merchant 's share is recoverable . our direct revenue from deals where we act as the merchant of record is the purchase price paid by the customer , excluding applicable taxes and net of estimated refunds . we generated revenue of $ 3,191.7 million during the year ended december 31 , 2014 , as compared to $ 2,573.7 million during the year ended december 31 , 2013 . our operations are organized into three segments : north america , emea and the remainder of our international operations ( `` rest of world '' ) . see note 16 `` segment information `` for further information . for the year ended december 31 , 2014 , we derived 57.2 % of our revenue from our north america segment , 30.1 % of our revenue from our emea segment and 12.7 % of our revenue from our rest of world segment . on january 2 , 2014 , we acquired all of the outstanding equity interests of livingsocial korea , inc. , including its subsidiary ticket monster inc. ( `` ticket monster '' ) , for total consideration of $ 259.4 million , consisting of $ 96.5 million in cash and $ 162.9 million of class a common stock . ticket monster is an e-commerce company based in the republic of korea that connects merchants to consumers by offering goods and services at a discount . the operations of ticket monster are reported within our rest of world segment for the year ended december 31 , 2014 . on january 13 , 2014 , we acquired all of the outstanding equity interests of ideeli , inc. ( d/b/a `` ideel '' ) , a fashion flash site based in the united states , for total consideration of $ 42.7 million . ideel is focused on women 's fashion apparel , accessories and home decor , and the operations of ideel are reported within our north america segment for the year ended december 31 , 2014 . we have hired advisers to help us explore a range of financing and strategic alternatives for ticket monster and certain other asian markets . as part of that process , multiple parties have expressed preliminary interest in ticket monster . however , we can not provide any assurance as to the pricing , timetable or structure of any transaction , or the likelihood of any transaction being completed . how we measure our business we measure our business with several financial and operating metrics . we use these metrics to assess the progress of our business , make decisions on where to allocate capital , time and technology investments and assess the long-term performance of our marketplaces . certain of the financial metrics are reported in accordance with u.s. generally accepted accounting principles ( `` u.s. gaap '' ) and certain of these metrics are considered non-gaap financial measures . as our business evolves , we may make changes to our key financial and operating metrics used to measure our business in future periods . for further information and a reconciliation to the most applicable financial measure under u.s. gaap , refer to our discussion under non-gaap financial measures in the `` results of operations `` section . 32 financial metrics gross billings . this metric represents the total dollar value of customer purchases of goods and services , excluding applicable taxes and net of estimated refunds . for third party revenue deals , gross billings differs from third party revenue reported in our consolidated statements of operations , which is presented net of the merchant 's share of the transaction price . for direct revenue deals , gross billings are equivalent to direct revenue reported in our consolidated statements of operations . we consider this metric to be an important indicator of our growth and business performance as it is a proxy for the dollar volume of transactions generated through our marketplaces . tracking gross billings on third party revenue deals also allows us to track changes in the percentage of gross billings that we are able to retain after payments to our merchants . revenue . third party revenue is derived from deals where we act as the marketing agent and is the purchase price paid by the customer less an agreed upon portion of the purchase price paid to the featured merchant , excluding applicable taxes and net of estimated refunds for which the merchant 's share is recoverable . story_separator_special_tag we depend on our ability to attract and retain merchants that are prepared to offer products or services on compelling terms , particularly as we attempt to expand our product and service offerings in order to create more complete online marketplaces for local commerce . in north america and many of our foreign markets , we offer deals in which the merchant has a continuous presence on our websites and mobile applications by offering vouchers on an ongoing basis for an extended period of time . currently , a substantial majority of our merchants in north america elect to offer deals in this manner , and we expect that trend to continue . these marketplaces , which we refer to as `` pull '' marketplaces , enable customers to search for specific types of deals on our websites and mobile applications . however , merchants have the ability to withdraw their extended deal offerings , and we generally do not have 34 noncancelable long-term arrangements to guarantee availability of deals . in order to attract merchants that may not have run deals on our platform or would have run deals on a competing platform , we have been willing to accept lower deal margins across all three of our segments and we expect that trend to continue . this has contributed to lower deal margins during the year ended december 31 , 2014 , as compared to the prior year periods . if new merchants do not find our marketing and promotional services effective , or if our existing merchants do not believe that utilizing our services provides them with a long-term increase in customers , revenue or profit , they may stop making offers through our marketplaces or they may only continue offering deals if we accept lower margins . international operations . our international operations represent a substantial portion of our business and have increased as a percentage of our total revenue in the current year . for the years ended december 31 , 2014 , 2013 and 2012 , 30.1 % , 28.9 % and 34.5 % of our revenue was generated from our emea segment , respectively , and 12.7 % , 12.0 % and 15.6 % of our revenue was generated from our rest of world segment , respectively . operating a global business requires management attention and resources and requires us to localize our services to conform to a wide variety of local cultures , business practices , laws and regulations . the different commercial and regulatory environments in other countries may make it more difficult for us to successfully operate our business . in addition , many of the automation tools and technology enhancements that we have implemented in our north america segment are close to being fully implemented in most emea countries but have not been substantially rolled out to the countries in our rest of world segment . revenue from our emea segment increased for the year ended december 31 , 2014 , as compared to the prior year , and the percentage of total revenue generated by our emea segment increased on a year-over-year basis . revenue from our rest of world segment increased for the year ended december 31 , 2014 , as compared to the prior year . on a year-over-year basis , the percentage of total revenue generated by our rest of world segment increased for the year ended december 31 , 2014 . revenue from our north america segment increased for the year ended december 31 , 2014 , as compared to the prior year , and the percentage of total revenue generated by our north america segment decreased on a year-over-year basis . the decrease in north america revenue as a percentage of total revenue was primarily due to the increase in direct revenue transactions from our groupon goods business in emea , as direct revenue is presented on a gross basis in our consolidated statements of operations . marketing activities . we must continue to acquire and retain customers in order to increase revenue and attempt to achieve profitability . if consumers do not perceive our groupon offerings to be attractive , or if we fail to introduce new or more relevant deals , we may not be able to acquire or retain customers . in addition , as we build-out more complete marketplaces , our success will depend on our ability to increase consumer awareness of deals available through those marketplaces . as discussed under `` components of results of operations , '' we consider order discounts , free shipping on qualifying merchandise sales and reducing margins on our deals to be marketing-related activities , even though these activities are not presented as marketing expenses in our consolidated statements of operations . we have , and expect to continue to , reduce our deal margins when we believe that by doing so we can offer our customers a product or service from a merchant who might not have otherwise been willing to conduct business through our marketplaces . we use this as a marketing tool because we believe that in some instances this is an effective method of retaining or activating a customer , as compared to other methods of retention or activation , such as traditional advertising or discounts . investment in growth . we have aggressively invested , and intend to continue to invest , in our products and infrastructure to support our growth . we also continue to invest in business acquisitions to grow our merchant and customer base , expand our presence in international markets , expand and advance our product offerings and enhance our technology capabilities . we anticipate that we will make substantial investments in the foreseeable future as we continue to increase the number and variety of deals we offer each day , broaden our customer base , expand our marketing channels , expand our operations , hire additional employees and develop our technology .
| results of operations comparison of the years ended december 31 , 2014 and 2013 : replace_table_token_8_th 38 classification of stock-based compensation within cost of revenue and operating expenses cost of revenue and operating expenses include stock-based compensation as follows : replace_table_token_9_th foreign exchange rate neutral operating results the effect on our gross billings , revenue , cost of revenue and operating expenses , and ( loss ) income from operations for the year ended december 31 , 2014 from changes in exchange rates versus the u.s. dollar was as follows : replace_table_token_10_th ( 1 ) represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period . ( 2 ) represents the increase or decrease in reported amounts resulting from changes in exchange rates from those in effect in the prior year period . gross billings gross billings represents the total dollar value of customer purchases of goods and services , excluding applicable taxes and net of estimated refunds . gross billings for the years ended december 31 , 2014 and 2013 were as follows : replace_table_token_11_th for third party revenue deals , gross billings differs from third party revenue reported in our consolidated statements of operations , which is presented net of the merchant 's share of the transaction price . for direct revenue deals and other revenue , 39 gross billings are equivalent to direct revenue and other revenue reported in our consolidated statements of operations . gross billings increased by $ 1,823.6 million to $ 7,581.0 million for the year ended december 31 , 2014 , as compared to $ 5,757.3 million for the year ended december 31 , 2013 , primarily due to the acquisition of ticket monster which contributed $ 1,343.1 million in gross billings for the year ended december 31 , 2014 .
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7. debt debt consists of the following : replace_table_token_29_th at september 30 , 2016 , we had $ 33,070 available to us under the credit story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto , set forth in item 8 , financial statements and supplementary data of this form 10-k. for additional information , see disclosure regarding forward looking statements in part i of this form 10-k. overview executive overview please refer to item 1 . business of this form 10-k for a discussion of the company 's services and corporate strategy . ies holdings , inc. , a delaware corporation , is a holding company that owns and manages diverse operating subsidiaries , comprised of providers of industrial infrastructure services to a variety of end markets . our operations are currently organized into four principal business segments : communications , residential , commercial & industrial , and infrastructure solutions . industry trends our performance is affected by a number of trends that drive the demand for our services . in particular , the markets in which we operate are exposed to many regional and national trends such as the demand for single and multi-family housing , the need for mission critical facilities as a result of technology-driven advancements , the degree to which in-house maintenance departments outsource maintenance and repair work , output levels and equipment utilization at heavy industrial facilities , demand for our rail services , and changes in commercial , institutional , public infrastructure and electric utility spending . over the long term , we believe that there are numerous factors that could positively drive demand and affect growth within the industries in which we operate , including ( i ) population growth , which will increase the need for commercial and residential facilities , ( ii ) aging public infrastructure , which must be replaced or repaired , ( iii ) increased emphasis on environmental and energy efficiency , which may lead to both increased public and private spending , and ( iv ) the low price of natural gas which is expected to spur the construction of and modifications to heavy industrial facilities . however , there can be no assurance that we will not experience a decrease in demand for our services due to economic , technological or other factors , including the continued weakness in the oil and gas sector , which may reduce the demand for housing in the texas region , where our residential division operates . for a further discussion of the industries in which we operate , please see item 1 . business operating segments of this form 10-k. business outlook while there are differences among the company 's segments , on an overall basis , demand for the company 's services increased in fiscal 2016 as compared to fiscal 2015 , resulting in aggregate year-over-year revenue growth . in addition , the company 's previous investment in growth initiatives and other business-specific factors discussed below contributed to year-over-year revenue growth . among our segments , year-over-year revenue growth rates during fiscal 2016 were led primarily by growth in our communications segment followed by our commercial & industrial segment . the combination of increasing revenue , effective project execution , and efficient scaling of operations as the economy improves has resulted in a year-over-year increase in profitability . provided that no significant deterioration in general economic conditions occurs , the company expects total revenues from existing businesses to increase on a year-over-year basis during fiscal 2017 due to an increase in overall demand for the services we provide and our efforts to increase our market share . despite this expectation of growth within certain segments , we remain focused on controlled growth within certain markets which continue to experience highly competitive margins and increasing costs . to continue to grow our business , including through acquisitions , and to fund working capital , we may require a significant amount of cash . our ability to generate cash depends on many factors that are beyond our control , including demand for our services , the availability of projects at margins acceptable to us , the ultimate 29 collectability of our receivables , our ability to borrow on our credit facility , and our ability to raise funds in the capital markets , among many other factors . we anticipate that the combination of cash on hand , cash flows from operations and available capacity under our credit facility will provide sufficient cash to enable us to meet our working capital needs , debt service requirements and capital expenditures for property and equipment through the next twelve months . we expect that our fixed asset requirements will range from $ 4.0 to $ 5.0 million for the fiscal year ending on september 30 , 2017 , and we may acquire these assets either through capital expenditures or through lease agreements . story_separator_special_tag with higher profitability . selling , general and administrative expenses as a percentage of revenues in the communications segment decreased 0.5 % to 11.1 % of segment revenue during the year ended september 30 , 2015 compared to the year ended september 30 , 2014 as we benefited from increased activity . residential 2016 compared to 2015 replace_table_token_9_th revenue . revenues increased $ 19.6 million during the year ended september 30 , 2016 , an increase of 9.5 % as compared to the year ended september 30 , 2015. single-family construction revenues increased by $ 22.2 million , primarily from growth in north carolina and georgia , as well as texas , where the economy has experienced continued growth and population expansion . cable and service activity , as well as revenue from solar installations , also increased year over year . story_separator_special_tag 2015 compared to 2014 replace_table_token_12_th revenue . revenues increased $ 12.6 million during the year ended september 30 , 2015 , an increase of 7.6 % compared to the year ended september 30 , 2014. the market for this segment 's services remains highly competitive and , as such , we continue to maintain a disciplined bid strategy . however , a continued focus on our sales strategy combined with improved market conditions in certain regions where we operate led to the year over year revenue increase . gross profit . gross profit during the year ended september 30 , 2015 increased by $ 3.4 million , or 18.6 % , as compared to the year ended september 30 , 2014. the increase was due to an overall increase in the size of projects in progress , specific to the education , power distribution , and industrial markets . commercial & industrial 's gross margin percentage increased 1.1 % to 12.0 % during the year ended september 30 , 2015. the 34 improvement in margin percentage was primarily attributable to improved productivity , as well as a more selective bidding strategy which we believe reduced our exposure to riskier projects that have historically resulted in reduced earnings . selling , general and administrative expenses . selling , general and administrative expenses during the year ended september 30 , 2015 increased by $ 0.5 million , or 3.8 % , compared to the year ended september 30 , 2014. selling , general and administrative expense as a percentage of revenues in the commercial & industrial segment decreased by 0.3 % during the year ended september 30 , 2015 , as we benefited from increased activity . infrastructure solutions 2016 compared to 2015 replace_table_token_13_th revenue . revenues in our infrastructure solutions segment increased by $ 11.2 million during the year ended september 30 , 2016 , an increase of 23.9 % compared to the year ended september 30 , 2015. the increase in revenue was driven primarily by the southern rewinding , calumet and technibus acquisitions , which provided additional revenue of $ 20.6 million for the year ended september 30 , 2016. this increase was partially offset by a $ 6.7 million decrease in revenues from our engine component business , for which we sold substantially all of the operating assets in april 2016. for additional information see note 18 , business combinations and divestitures in the notes to our consolidated financial statements . gross profit . our infrastructure solutions segment 's gross profit during the year ended september 30 , 2016 increased by $ 5.0 million , as compared to the year ended september 30 , 2015. the increase was driven primarily by the acquisitions of southern rewinding , technibus and calumet , which contributed $ 6.9 million of additional gross profit for the year ended september 30 , 2016 compared with the year ended september 30 , 2015. this increase was partly offset by a $ 2.0 million reduction in gross profit from our engine component business , for which we sold substantially all of the operating assets in april 2016. gross profit as a percent of revenue increased from 22.7 % for the year ended september 30 , 2015 to 27.0 % for the year ended september 30 , 2016 , as a result of higher margins at calumet and technibus . selling , general and administrative expenses . our infrastructure solutions segment 's selling , general and administrative expenses during the year ended september 30 , 2016 increased by $ 2.9 million compared to the year ended september 30 , 2015. selling , general and administrative expense as a percentage of revenue increased from 20.3 % for the year ended september 30 , 2015 to 21.4 % for the year ended september 30 , 2016. the increase was driven primarily by the acquisitions of southern rewinding , technibus and calumet , which contributed $ 3.6 million of additional expense for the year ended september 30 , 2016 compared with the year ended september 30 , 2015. this increase was partly offset by a $ 0.5 million reduction in selling , general and administrative expense at our engine component business , for which we sold substantially all of the operating assets in april 2016. contingent consideration . results of operations from calumet have outperformed forecast measures used in our original valuation of the contingent consideration agreement , which we calculated following the acquisition of calumet . as we now expect to pay higher contingent consideration because of increased profitability , we recorded additional contingent consideration expense of $ 0.7 million during the year ended september 30 , 2016 . 35 loss on sale of asset . we recognized $ 0.8 million in conjunction with the write down to net realizable value of certain assets related to our engine component business . the sale of these assets to a third party pursuant to an asset purchase agreement was finalized on april 15 , 2016 . 2015 compared to 2014 replace_table_token_14_th revenue . revenues in our infrastructure solutions segment decreased by $ 0.7 million during the year ended september 30 , 2015 , a decrease of 1.5 % compared to the year ended september 30 , 2014. the decrease in revenue was driven primarily by a decrease in demand for power assemblies by certain of our large rail customers . this decrease was partially offset by improved demand for electric motor repair services and the expansion of our customer base . revenue for the year ended september 30 , 2015 includes $ 2.9 million from southern rewinding , which we acquired in may 2015. gross profit .
| results of operations we report our operating results across our four operating segments : communications , residential , commercial & industrial and infrastructure solutions . our consolidated financial results also reflect expenses associated with our corporate office . the following table presents selected historical results of operations of ies . replace_table_token_6_th the increase in net income for the year ended september 30 , 2016 compared with the year ended september 30 , 2015 is driven by a $ 109.0 million tax benefit in connection with the release of a valuation allowance on our deferred tax assets . this release is the result of a recent improvement in earnings , the addition of four new businesses acquired during the year , and consequently an improvement in our expectations about the generation of future taxable income to utilize our net operating loss carryforwards . see note 9 income taxes in our consolidated financial statements for further discussion . consolidated revenues for the year ended september 30 , 2016 were $ 122.1 million greater than for the year ended september 30 , 2015 , an increase of 21.3 % . revenues increased as the communications , commercial & industrial , and infrastructure solutions segments each recognized double digit revenue growth driven by an increase in demand for their service offerings combined with continued improvement of conditions in the markets in which they operate . additionally , newly acquired businesses provided a combined $ 34.4 million of revenue in our commercial & industrial and infrastructure solutions segments for the year ended september 30 , 2016. the residential segment also contributed to the overall year-over-year growth .
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changes in the probabilities of expected earnings may have a significant impact on the fair value of the contingent liability story_separator_special_tag the following management 's discussion and analysis is intended to provide a summary of the principal factors affecting the results of operations , liquidity and capital resources , contractual obligations , and the critical accounting policies of franklin covey co. ( also referred to as we , us , our , the company , and franklincovey ) and subsidiaries . this discussion and analysis should be read together with our consolidated financial statements and related notes , which contain additional information regarding the accounting policies and estimates underlying our financial statements . our consolidated financial statements and related notes are presented in item 8 of this report on form 10-k. executive summary franklin covey co. is a global company focused on individual and organizational performance improvement . our mission is to “ enable greatness in people and organizations everywhere , ” and our 825 employees worldwide are organized to help individuals and organizations achieve sustained superior performance through changes in human behavior . our expertise extends to seven crucial areas : leadership , execution , productivity , trust , sales performance , customer loyalty , and educational improvement . we believe that our clients are able to utilize our content to create cultures whose hallmarks are high-performing , collaborative individuals , led by effective , trust-building leaders who execute with excellence and deliver measurably improved results for all of their key stakeholders . in the training and consulting marketplace , we believe there are four important characteristics that distinguish us from our competitors . 1. world class content – our content is principle centered and based on natural laws of human behavior and effectiveness . our content is designed to build new skillsets , establish new mindsets , and provide enabling toolsets . we believe that our content is based on timeless principles , natural laws of human and organizational effectiveness , and research-proven applications . 2. transformational impact and reach – we hold ourselves responsible for and measure ourselves by our clients ' achievement of transformational results . our commitment to achieving lasting impact extends to all of our clients—from ceos to elementary school students , and from senior management to front-line workers in corporations , governmental , and educational environments . 3. breadth and scalability of delivery options – we have a wide range of content delivery options , including : on-site training , training led through certified facilitators , on-line learning , blended learning , intellectual property licenses , and organization-wide transformational processes , including consulting and coaching . 4. global capability – we operate four regional sales offices in the united states ; wholly owned subsidiaries in australia , japan , and the united kingdom ; and contract with licensee partners who deliver our curriculum and provide services in over 165 other countries and territories around the world . we have some of the best-known offerings in the training industry , including a suite of individual-effectiveness and leadership-development training content based on the best-selling books , the 7 habits of highly effective people , the speed of trust , and the 4 disciplines of execution , and proprietary content in the areas of execution , sales performance , productivity , customer loyalty , and education . our offerings are described in further detail at www.franklincovey.com . the information contained in , or that can be accessed through , our website does not constitute a part of this annual report , and the descriptions found therein should not be viewed as a warranty or guarantee of results . 27 our financial results for the fiscal year ended august 31 , 2014 reflect the sixth consecutive year of increased sales for our current business ( subsequent to the sales of our products division in fiscal 2008 ) , improved operating results , increased cash flows from operating activities , and a strong financial position . our net sales in fiscal 2014 increased to $ 205.2 million , compared with $ 190.9 million in fiscal 2013 , and $ 170.5 million in fiscal 2012. our fiscal 2014 sales represent seven percent growth compared with fiscal 2013 , which grew 12 percent compared with fiscal 2012. consolidated fiscal 2014 sales increased 20 percent compared with fiscal 2012 sales levels . our fiscal 2014 fourth-quarter sales totaled $ 68.1 million , which is an 11 percent increase over the fourth quarter of the prior year and represents the strongest quarterly sales performance ever for our current business . our sales growth during fiscal 2014 was primarily driven by increased national account practice sales , especially in the education practice , and by the launch of the re-created the 7 habits of highly effective people – signature program ( the 7 habits signature program ) late in the second quarter . the following table sets forth consolidated sales data by category and by our primary delivery channels ( in thousands ) : replace_table_token_3_th we believe that ongoing investments in curriculum development and increasing the size of our sales force will help us maintain favorable sales growth momentum in future periods . our gross profit for fiscal 2014 increased seven percent to $ 138.3 million , compared with $ 129.0 million in the prior year , primarily due to increased sales . our gross margin , which is gross profit as a percent of sales , was essentially unchanged at 67.4 percent compared with 67.6 percent in fiscal 2013. our operating expenses increased $ 6.1 million compared with fiscal 2013 primarily due to a $ 5.0 million increase in selling , general , and administrative expenses , a $ 0.8 million increase in amortization expense , and a $ 0.4 million increase in depreciation expense . story_separator_special_tag u.s./canada direct – this channel includes our four regional sales offices that serve clients in the united states and canada , and our government services group . increased sales at each of our regional sales offices during fiscal 2014 was partially offset by decreased government services sales . excluding the government services group , sales increased at our regional sales offices by $ 7.3 million , or 9 percent , compared with the prior year . the increase over the prior year at our regional sales offices was primarily due to the launch of the re-created the 7 habits signature program during the second half of fiscal 2014 and increased execution practice sales . execution practice revenues continue to improve compared with the prior year primarily due to increased demand and new contracts for this offering . during fiscal 2014 , government services revenues decreased $ 5.1 million , primarily due to the timing of renewals for a large government contract throughout the year . we anticipated a renewal of this contract during our fourth quarter of fiscal 2014 ; however , the renewal timeframe was slightly longer than we anticipated and we were awarded a renewal of this contract in the first week of september 2014 for services to be delivered over the next nine months . at august 31 , 2014 , our corporate pipeline of booked days and awarded revenue remains strong , and our current outlook for growth in fiscal 2015 and future periods is encouraging for this channel . in addition to building our pipeline of prospective business , we believe continued growth in this channel 30 is also dependent on our ability to hire and train additional qualified sales professionals . as these additional sales professionals are hired and “ ramp up ” to expected sales levels in subsequent years , we believe that we will generate significant incremental revenues . however , there can be no guarantee that we will be able to hire sufficient numbers of qualified sales people , and that they will be able to achieve expected sales performance goals . international direct – our directly owned international offices are located in australia , japan , and the united kingdom . for the fiscal year ended august 31 , 2014 , increased sales at our offices in the united kingdom , australia , and south korea were offset by decreased sales at our office in japan . the launch of the re-created the 7 habits signature program , which was released in north america , australia , and the united kingdom during the second quarter of fiscal 2014 , had a favorable effect on australia and the united kingdom as our office in the united kingdom had its strongest fiscal year ever ( subsequent to the sale of its product division ) and increased its sales 27 percent compared with the prior year . our office in australia also had good sales performance , experienced its strongest fourth quarter ever , and overcame decreased sales in prior quarters of fiscal 2014. for the fiscal year ended august 31 , 2014 australia increased its sales by $ 0.1 million compared with the prior year . during fiscal 2014 we opened a direct office in south korea , which had sales totaling $ 0.5 million during the fiscal year . we sold the direct office operations in south korea to one of our existing international licensees in august 2014 , and we will only recognize royalty revenues from south korea in future periods . for fiscal 2014 , our sales in japan decreased $ 2.9 million compared with the prior year . sales in japan were adversely impacted by exchange rates , particularly during the first half of fiscal 2014 , and by decreased publishing sales . foreign exchange rates had a $ 1.8 million adverse impact on our sales in japan during fiscal 2014. publishing sales , which are primarily dependent upon the release of new publications in japanese , decreased by $ 0.7 million compared with fiscal 2013. during fiscal 2014 we did not release any significant new publications in japanese . however , we believe that the fourth quarter launch of the re-created the 7 habits signature program in japanese will have a favorable impact on training sales at our japan office during fiscal 2015. international licensees – in countries or foreign locations where we do not have a directly owned office , our training and consulting services are delivered through independent licensees , which may translate and adapt our curriculum to local preferences and customs , if necessary . during fiscal 2014 , certain of our foreign licensees , led by our singapore/china licensee , had increased training sales , which resulted in a 10 percent increase in international licensee revenues compared to the prior year . we believe that our continued efforts to support the licensees through additional program training , international branding , and the introduction of new products , such as the 7 habits signature program in multiple languages , will have a favorable impact on licensee sales in fiscal 2015 and beyond . national account practices – our national account practices offer and sell content solutions that are not typically offered in our u.s/canada direct geographic sales offices . these offerings include , in the education practice , the leader in me program designed for students primarily in k-6 elementary schools ; helping clients succeed from our sales performance practice ; and winning customer loyalty from our customer loyalty practice . during fiscal 2014 , sales increased in all three of our national account practices , which included a $ 6.2 million increase from our education practice , a $ 3.7 million increase from our sales performance practice , and a $ 1.7 million increase from our customer loyalty practice .
| summary our liquidity position remained strong during fiscal 2014 and we believe that our capital resources are adequate for continued growth in future periods . at august 31 , 2014 we had $ 10.5 million of cash and cash equivalents compared with $ 12.3 million at august 31 , 2013 and our net working capital ( current assets less current liabilities ) increased to $ 50.1 million compared with $ 38.2 million at august 31 , 2013. of our $ 10.5 million in cash and cash equivalents at august 31 , 2014 , $ 2.7 million was held at our foreign subsidiaries . we routinely repatriate earnings from our foreign subsidiaries for which u.s. taxes have previously been provided and consider foreign cash a key component of our overall liquidity position . our primary sources of liquidity are cash flows from the sale of services and content in the normal course of business , and proceeds from our available $ 10.0 million revolving line of credit . our primary uses of liquidity include payments for operating activities , capital expenditures ( including curriculum development ) , working capital expansion , business acquisitions , and repayment of our financing obligation . during fiscal 2014 , our cash flows and liquidity have been affected by increased capital spending as discussed in the section entitled “ cash flows from investing activities and capital expenditures ” found below . during fiscal 2013 we entered into the third modification agreement ( the third modification agreement ) to our previously existing amended and restated secured credit agreement ( the restated credit agreement ) with our existing lender . the primary purposes of the third modification agreement were to extend the maturity date of the restated credit agreement from march 31 , 2015 to march 31 , 2016 and to increase the caps for permitted business acquisitions .
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goodwill impairment testing : in the second quarter of 2018 , we elected to adopt amended guidance which simplifies story_separator_special_tag general management 's discussion and analysis of financial condition and results of operations , referred to as the financial review , is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations and financial position of mckesson corporation ( “ mckesson , ” the “ company , ” or “ we ” and other similar pronouns ) together with its subsidiaries . this discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying financial notes in item 8 of part ii of this annual report on form 10-k. the company 's fiscal year begins on april 1 and ends on march 31. unless otherwise noted , all references to a particular year shall mean the company 's fiscal year . certain statements in this report constitute forward-looking statements . see item 1 - business - forward-looking statements in part i of this annual report on form 10-k for additional factors relating to these statements ; also see item 1a - risk factors in part i of this annual report on form 10-k for a list of certain risk factors applicable to our business , financial condition and results of operations . we conduct our business through two reportable segments : mckesson distribution solutions ( “ mds ” ) and mckesson technology solutions . refer to financial note 28 , “ segments of business , ” to the consolidated financial statements appearing in this annual report on form 10-k for a description of these segments . 32 mckesson corporation financial review ( continued ) story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > ( $ 67 million after-tax ) primarily representing employee severance and lease exit costs for our mckesson europe business ; higher expenses due to our business acquisitions ; and pre-tax charitable contribution expense of $ 100 million ( $ 64 million after-tax ) to a public benefit california foundation ( “ foundation ” ) , as further described below . these increases in 2018 total operating expenses were partially offset by a pre-tax gain of $ 109 million ( after-tax gain of $ 30 million ) from the 2018 third quarter sale of our eis business in our technology solutions segment . excluding the gain on healthcare technology net asset exchange , 2017 total operating expenses increased primarily due to a non-cash pre-tax goodwill impairment charge of $ 290 million ( $ 282 million after-tax ) related to our eis business within our technology solutions segment and higher expenses due to our business acquisitions . 2017 total operating expenses benefited from lower restructuring charges and cost savings associated with a cost alignment plan implemented in the fourth quarter of 2016 and ongoing expense management efforts . 34 mckesson corporation financial review ( continued ) our investment in change healthcare is accounted for using the equity method of accounting . during 2018 , we recorded our proportionate share of loss from change healthcare of $ 248 million under the caption , “ loss from equity method investment in change healthcare , ” in our consolidated statements of operations . we recorded our proportionate share of a provisional net benefit recognized by change healthcare from the enactment of the december 2017 tax cuts and jobs act ( the “ 2017 tax act ” ) of $ 76 million primarily due to a reduction in future applicable tax rate . in the fourth quarter of 2018 , we recognized a pre-tax loss of $ 122 million ( $ 78 million after-tax ) on debt extinguishment related to our february 2018 tender offers to redeem a portion of our existing outstanding long-term debt . refer to financial note 16 , “ debt and financing activities , ” to the accompanying consolidated financial statements appearing in this annual report on form 10‑k for additional information . income from continuing operations before income taxes decreased in 2018 and increased in 2017 compared to the same periods a year ago primarily due to the pre-tax gain recognized in 2017 from the contribution of the core mts business . income from continuing operations before income taxes decreased in 2018 also due to the goodwill impairment charges within our distribution solutions segment , the restructuring and asset impairment charges , our proportionate share of loss from our equity method investment in change healthcare and loss on debt extinguishment . our reported income tax benefit rate was 22.2 % in 2018 and income tax expense rates were 23.4 % and 27.9 % in 2017 and 2016 . fluctuations in our reported income tax rates are primarily due to change in tax laws , including the recently enacted 2017 tax act , the impact of nondeductible impairment charges and varying proportions of income attributable to foreign countries that have income tax rates different from the u.s. rate . during 2018 , as a result of the 2017 tax act , we have recognized a provisional tax benefit of $ 1,324 million due to the re-measurement of certain deferred taxes to the lower u.s. federal tax rate and a provisional tax expense of $ 457 million for the one-time tax imposed on certain accumulated earnings and profits ( “ e & p ” ) of our foreign subsidiaries . refer to financial note 10 , “ income taxes , ” to the accompanying consolidated financial statements appearing in this annual report on form 10‑k for additional information . loss from discontinued operations , net of tax , for 2017 includes an after-tax loss from discontinued operations of $ 113 million resulting from the 2017 first quarter sale of our brazilian pharmaceutical distribution business . net income attributable to mckesson corporation was $ 67 million , $ 5,070 million and $ 2,258 million in 2018 , 2017 and 2016 and diluted earnings per common share attributable to mckesson corporation from continuing operations were $ 0.30 , $ 23.28 and $ 9.84 . story_separator_special_tag medical-surgical distribution and services revenues increased over the last two years primarily due to market growth . technology solutions technology solutions revenues for 2018 and 2017 decreased primarily due to the 2017 fourth quarter contribution of the core mts business to form the change healthcare joint venture , the april 2017 transition of our rhp business to our distribution solutions segment and the 2018 third quarter sale of our eis business . as a result , this segment 's 2018 revenues included only our eis business . 37 mckesson corporation financial review ( continued ) gross profit : replace_table_token_6_th bp - basis points ( 1 ) distribution solutions segment 's gross profit includes lifo credits of $ 99 million and $ 7 million in 2018 and 2017 and lifo charges of $ 244 million in 2016. gross profit for 2017 and 2016 also includes $ 144 million and $ 76 million of net cash proceeds representing our share of antitrust legal settlements . gross profit and gross profit margin decreased in 2018 and 2017 compared to the same periods a year ago . the decreases in 2018 were primarily due the previously described contribution of our core mts business to change healthcare . distribution solutions distribution solutions segment 's gross profit increased 12 % in 2018 and decreased 1 % in 2017 . as a percentage of revenues , gross profit increased by 29 bp in 2018 and decreased by 26 bp in 2017. gross profit and gross profit margin for 2018 increased compared to the same period a year ago primarily due to market growth , procurement benefits realized through clarusone , higher lifo inventory credits , our business acquisitions and the transfer of our rhp business from our technology solutions segment . these increases were partially offset by significant government reimbursement reductions in the u.k. , the competitive sell-side pricing environment , weaker pharmaceutical manufacturer pricing trends and our mix of business . gross profit and gross profit margin for 2017 decreased primarily due to weaker pharmaceutical manufacturer pricing trends , the competitive sell-side pricing environment and lower compensation from a branded pharmaceutical manufacturer in our u.s. pharmaceutical distribution business , partially offset by lifo inventory credits , higher cash receipts representing our share of antitrust legal settlements , higher procurement benefits and our business acquisitions . gross profit also reflects the impact of recent customer consolidation activities . our distribution solutions segment experienced weaker pharmaceutical manufacturer pricing trends over the last three years . our lifo inventory credits were $ 99 million and $ 7 million in 2018 and 2017 and lifo charges were $ 244 million in 2016. our north america distribution business uses the lifo method of accounting for the majority of its inventories , which results in cost of sales that more closely reflects replacement cost than under other accounting methods . the business ' practice is to pass on to customers published price changes from suppliers . manufacturers generally provide us with price protection , which limits price-related inventory losses . a lifo charge is recognized when the net effect of price increases on pharmaceutical and non-pharmaceutical products held in inventory exceeds the net impact of price declines , including the effect of branded pharmaceutical products that have lost market exclusivity . a lifo credit is recognized when the net effect of price declines exceeds the net impact of price increases on pharmaceutical and non-pharmaceutical products held in inventory . our annual lifo charge or credit is affected by changes in year-end inventory quantities , product mix and manufacturer pricing practices , which may be influenced by market and other external factors . changes to any of the above factors could have a material impact to our annual lifo credit or expense . lifo credits were higher in 2018 compared to 2017 due to higher net effect of price declines , partially offset by lower inventory level . lifo expense was recognized in 2016 primarily due to net effects of price increases . as of march 31 , 2018 and 2017 , pharmaceutical inventories at lifo did not exceed current replacement cost . 38 mckesson corporation financial review ( continued ) technology solutions technology solutions segment 's gross profit decreased in 2018 and 2017. gross profit and gross profit margin for 2018 decreased primarily due to the 2017 fourth quarter contribution of the core mts business , the transfer of our rhp business to our distribution solutions segment and the 2018 third quarter sale of our eis business . as a result , this segment 's 2018 gross profit and gross profit margin included only our eis business . gross profit for 2017 decreased due to one less month of gross profit from the core mts business , which was contributed to the joint venture on march 1 , 2017. gross profit margin for 2017 increased primarily due to a decline in hospital software revenues , lower severance charges , ongoing cost management efforts and the prior year sales of businesses , partially offset by a lower margin from our hospital software business . gross profit margin for 2017 also benefited from lower depreciation and amortization expenses related to the core mts business ' assets , which were classified as held for sale since the second quarter of 2017. depreciation and amortization related to the long-lived assets ceased as of the date they were determined as held for sale . 39 mckesson corporation financial review ( continued ) operating expenses , other income , net and loss from equity method investment : replace_table_token_7_th bp - basis points nm - not meaningful ( 1 ) the amounts exclude the goodwill impairment charges and restructuring and asset impairment charges . 2016 includes a pre-tax gain of $ 52 million from the 2016 third quarter sale of our zee medical business . ( 2 ) the amounts exclude the gain from sale of business , gain on healthcare technology net asset exchange , net , and goodwill impairment charge .
| results of operations overview : replace_table_token_4_th bp - basis points nm - not meaningful revenues for 2018 and 2017 increased 5 % and 4 % compared to the same periods a year ago primarily due to market growth , reflecting growing drug utilization and price increases , our business acquisitions and expanded business with existing customers within our north america pharmaceutical distribution businesses . these increases for 2018 and 2017 were partially offset by price deflation associated with brand to generic drug conversion and loss of customers and for 2018 also by the contribution of the majority of our mckesson technology solutions businesses ( “ core mts business ” ) to a joint venture in march 2017 , as further discussed below . 33 mckesson corporation financial review ( continued ) gross profit and gross profit margin decreased in 2018 and 2017 compared to the same periods a year ago . the decrease for 2018 was primarily due to the contribution of the core mts business , significant government reimbursement reductions in the united kingdom ( “ u.k. ” ) , the competitive sell-side environment and weaker pharmaceutical manufacturer pricing trends . these decreases in 2018 were partially offset by market growth , procurement benefits realized through the joint sourcing entity , clarusone sourcing services llp ( “ clarusone ” ) , higher last-in , first-out ( “ lifo ” ) credits and our business acquisitions . gross profit and gross profit margin decreased in 2017 primarily due to weaker pharmaceutical manufacturer pricing trends , the competitive sell-side pricing environment , our mix of business and lower compensation from a branded pharmaceutical manufacturer from our u.s. pharmaceutical distribution business . these decreases for 2017 were partially offset by our business acquisitions , lifo inventory credits , higher cash receipts from antitrust legal settlements and higher procurement benefits . gross profit for 2017 and 2016 benefited from $ 144 million and $ 76 million of cash receipts representing our share of antitrust legal settlements .
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we believe we achieved this leadership position through our expertise and technology , which has empowered us to help organizations of all sizes transition from legacy on-premise contact center systems to our cloud solution . our solution , comprised of our vcc cloud platform and applications , allows simultaneous management and optimization of customer interactions across voice , chat , email , web , social media and mobile channels , either directly or through our apis . our vcc cloud platform matches each customer interaction with an appropriate agent resource and delivers relevant customer data to the agent in real-time through integrations with adjacent enterprise applications , such as crm software , to optimize the customer experience and improve agent productivity . unlike legacy on-premise contact center systems , our solution requires minimal up-front investment , can be rapidly deployed and adjusted depending on our client 's requirements . since founding our business in 2001 , we have focused exclusively on delivering cloud contact center software . we initially targeted smaller contact center opportunities with our telesales team and , over time , invested in expanding the breadth and depth of the functionality of our cloud platform to meet the evolving requirements of our clients . in 2009 , we made a strategic decision to expand our market opportunity to include larger contact centers . this decision drove further investments in research and development and the establishment of our field sales team to meet the requirements of these larger contact centers . we believe this shift has helped us diversify our client base , while significantly enhancing our opportunity for future revenue growth . to complement these efforts , we have also focused on building client awareness and driving adoption of our solution through marketing activities , which include internet advertising , digital marketing campaigns , social media , trade shows , industry events , telemarketing and out of home campaigns . we provide our solution through a saas business model with recurring subscriptions . we offer a comprehensive suite of applications delivered on our vcc cloud platform that are designed to enable our clients to 52 manage and optimize interactions across inbound and outbound contact centers . we primarily generate revenue by selling subscriptions and related usage of our vcc cloud platform . we charge our clients monthly subscription fees for access to our solution , primarily based on the number of agent seats , as well as the specific functionalities and applications our clients deploy . we define agent seats as th e maximum number of named agents allowed to concurrently access our solution . our clients typically have more named agents than agent seats , and multiple named agents may use an agent seat , though not simultaneously . substantially all of our clients purchase both subscriptions and related telephony usage from us . a small percentage of our clients subscribe to our platform but purchase telephony usage directly from wholesale telecommunications service providers . we do not sell telephony usage on a stand-alone basis to any client . the related usage fees are based on the volume of minutes for inbound and outbound interactions . we also offer bundled plans , generally for smaller deployments , where the client is charged a single monthly fixed fee per agent seat that includes both subscription and unlimited usage in the contiguous 48 states and , in some cases , canada . we offer monthly , annual and multiple-year contracts to our clients , generally with 30 days ' notice required for reductions in the number of agent seats . increases in the number of agent seats can be provisioned almost immediately . our clients , therefore , are able to adjust the number of agent seats used to meet their changing contact center volume needs . our larger clients typically choose annual contracts , which generally include an implementation and ramp period of several months . fixed subscription fees , including bundled plans , are generally billed monthly in advance , while related usage fees are billed in arrears . for the years ended december 31 , 2020 , 2019 and 2018 , subscription and related usage fees accounted for 92 % , 92 % and 93 % of our revenue , respectively . the remainder was comprised of professional services revenue from the implementation and optimization of our solution . effects of covid-19 in december 2019 , a novel coronavirus disease known as covid-19 was reported and on march 11 , 2020 , the who characterized covid-19 as a pandemic . this pandemic has resulted in a widespread health crisis that has significantly harmed the u.s. and global economies and caused significant fluctuation in financial markets , including those on which our common stock and our convertible senior notes trade , and may impact demand for our solution . in accordance with the various social distancing and other office closure orders and recommendations of applicable government agencies , all of our employees have transitioned to work-from-home operations and we have canceled all business travel by our employees except where necessary and properly authorized , which has changed how we operate our business . our clients and business partners are also subject to various and changing social distancing and office closure orders and recommendations and travel restrictions and prohibitions , which have changed the way we interact with our clients and business partners . covid-19 had a moderately positive impact on our 2020 financial results due to the shift from brick-and-mortar to virtual . the severity and duration of the covid-19 pandemic , and its impact on the u.s. and global economy , is uncertain , but we believe that there will be a continuing net benefit to us longer term . see part i , item 1a . risk factors , for further discussion of the impact of the covid-19 pandemic on our business and operations . story_separator_special_tag we expense research and development expenses as they are incurred except for internal use software development costs that qualify for capitalization . we believe that continued investment in our solution is important for our future growth , and we expect our research and development expenses to increase in absolute dollars and as a percentage of revenue in the near term . sales and marketing . sales and marketing expenses consist primarily of salaries and related expenses , including stock-based compensation , for personnel in sales and marketing , sales commissions , as well as advertising , marketing , corporate communications , travel costs and allocated overhead . we believe it is important to continue investing in sales and marketing to continue to generate revenue growth , and we expect sales and marketing expenses to increase in absolute dollars over the long term and fluctuate as a percentage of revenue as we continue to support our growth initiatives . general and administrative . general and administrative expenses consist primarily of salary and related expenses , including stock-based compensation , for management , finance and accounting , legal , information systems and human resources personnel , professional fees , compliance costs , other corporate expenses and allocated overhead . we expect that general and administrative expenses will fluctuate in absolute dollars and as a percentage of revenue in the near term , due to among other things , the impact of covid-19 and the resulting macroeconomic conditions , but to increase in absolute dollars and decline as a percentage of revenue over time . 56 results of operations for the years ended december 31 , 2020 and 2019 based on the consolidated statements of operations and comprehensive loss set forth in this annual report , the following table sets forth our operating results as a percentage of revenue for the periods indicated : replace_table_token_8_th year-to-year comparisons between 2019 and 2018 have been omitted from this form 10-k but may be found in “ management 's discussion and analysis of financial condition ” in part ii , item 7 of our form 10-k for the fiscal year ended december 31 , 2019 , which specific discussion is incorporated herein by reference . comparison of the years ended december 31 , 2020 and 2019 revenue year ended december 31 , 2020 2019 $ change % change ( in thousands , except percentages ) revenue $ 434,908 $ 328,006 $ 106,902 33 % the increase in revenue for 2020 compared to 2019 was primarily attributable to our larger clients , driven by an increase in our sales and marketing activities and our improved brand awareness . cost of revenue replace_table_token_9_th the increase in cost of revenue for 2020 compared to 2019 was primarily due to a $ 11.6 million increase in personnel costs , including stock-based compensation costs , driven mainly by increased headcount and a higher fair value of employee equity awards due primarily to our increased stock price , a $ 10.2 million increase in depreciation and data center costs driven by increased capital expenditures to support our growing capacity needs and continuing expansion of our existing data center facilities , a $ 6.8 million increase in third-party hosted software costs driven by increased client activities , a $ 6.0 million increase in amortization expense due to the acquisitions of virtual observer 57 in april 2020 and inference in november 2020 and the acquisition of certain intangible assets from whendu in november 2019 , a $ 4.5 million increase in usf contributions and other federal telecommunication service fees due primarily to increased client usage and an increase in the usf contribution rate , and a $ 1.9 million increase in office , facilities and related costs . gross profit replace_table_token_10_th the increase in gross profit for 2020 compared to 2019 was primarily due to increases in subscription and related revenues . gross margin for 2020 was flat compared to 2019. operating expenses research and development replace_table_token_11_th the increase in research and development expenses for 2020 compared to 2019 was primarily due to a $ 18.6 million increase in personnel-related costs including stock-based compensation costs , driven mainly by increased headcount and a higher fair value of employee equity awards due primarily to our increased stock price . sales and marketing replace_table_token_12_th the increase in sales and marketing expenses for 2020 compared to 2019 was primarily due to a $ 25.5 million increase in personnel-related costs , including stock-based compensation costs driven mainly by increased headcount and higher fair value of equity awards due primarily to our increased stock price , a $ 6.7 million increase in sales commission expenses driven by the growth in sales and bookings of our solution , and a $ 1.8 million increase in facilities and related costs . the remaining net increase in sales and marketing expenses was primarily due to the execution of our growth strategy to acquire new clients , increase the number of agent seats within our existing client base , and increased advertising and other marketing expenses to increase our brand awareness . general and administrative replace_table_token_13_th the increase in general and administrative expenses for 2020 compared to 2019 was primarily due to a $ 11.6 million increase in personnel-related costs including stock-based compensation costs , driven mainly by increased headcount and a higher fair value of equity awards due primarily to our increased stock price , and a $ 5.0 million increase in legal and other professional service costs mainly related to our acquisitions . 58 other income ( expense ) , net replace_table_token_14_th the increase in interest expense for 2020 compared to 2019 was primarily due to increased interest expense under our 2025 convertible senior notes issued in may and june 2020 , offset in part by the decrease in interest expense as a result of the 2023 note repurchase transactions and other 2023 convertible senior note settlements , which decreased the aggregate outstanding principal amount of our 2023 convertible senior notes .
| key gaap operating results our revenue increased to $ 434.9 million for the year ended december 31 , 2020 , from $ 328.0 million and $ 257.7 million for the years ended december 31 , 2019 and 2018 , respectively . revenue growth was primarily attributable to our larger clients , driven by an increase in our sales and marketing activities and our improved brand awareness . for each of the years ended december 31 , 2020 , 2019 and 2018 , no single client accounted for more than 10 % of our total revenue . as of december 31 , 2020 , we had over 2,000 clients across multiple industries . our clients ' subscriptions generally range in size from fewer than 10 agent seats to approximately 9,000 agent seats . we had a net loss of $ 42.1 million , $ 4.6 million and $ 0.2 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . we have continued to make significant expenditures and investments , including in sales and marketing , research and development and infrastructure . we primarily evaluate the success of our business based on revenue growth and the efficiency and effectiveness of our investments . the growth of our business and our future success depend on many factors , including our ability to continue to expand our base of larger clients , grow revenue from our existing client base , innovate and expand internationally . while these areas represent significant opportunities for us , they also pose risks and challenges that we must successfully address in order to sustain the growth of our business and improve our operating results , including the impact of the covid-19 pandemic .
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2. audit-related services are for assurance and related services that are traditionally performed by an independent registered public accounting firm , including due diligence related to mergers and acquisitions , employee benefit plan audits , and special procedures required to meet certain regulatory requirements . 3. tax services include all services performed by an independent registered public accounting firm 's tax personnel except those services specifically related to the audit of the financial statements , and includes fees in the areas of tax compliance , tax planning , and tax advice . 38 4. other fees are those associated with services not captured in the other categories . the company generally does not request such services from our independent registered public accounting firm . prior to engagement , the audit committee pre-approves these services by category of service . the fees are budgeted and the audit committee requires our independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service . during the year , circumstances may arise when it may become necessary to engage our independent registered public accounting firm for additional services not contemplated in the original pre-approval . in those instances , the audit committee requires specific pre-approval before engaging our independent registered public accounting firm . the audit committee may delegate pre-approval authority to one or more of its members . the member to whom such authority is delegated must report , for informational purposes only , any pre-approval decisions to the audit committee at its next scheduled meeting . 39 part i v item 15. exhibits , financial statement schedules ( a ) ( 1 ) , ( 2 ) financial statements the financial statements and financial statement schedules listed on page f-1 of this document are filed as part of this filing . ( a ) ( 3 ) exhibits the following exhibits are filed as part of this report : exhibit no . description 3.1 certificate of incorporation of catasys , inc. , filed with the secretary of state of the state of delaware on september 29 , 2003 , incorporated by reference to exhibit of the same number of catasys inc. 's form 8-k filed with the securities and exchange commission on september 30 , 2003 . 3.2 certificate of amendment to certificate of incorporation of catasys , inc. , incorporated by reference to exhibit of the same number to catasys , inc. 's annual report on form 10-k filed with the securities and exchange commission for the year ended december 31 , 2010 . 3.3 certificate of amendment , as corrected by the certificate of correction , to certificate of incorporation of catasys , inc. , incorporated by reference to exhibit story_separator_special_tag forward-looking statements this annual report on form 10-k contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those discussed due to factors such as , among others , limited operating history , difficulty in developing , exploiting and protecting proprietary technologies , intense competition and substantial regulation in the healthcare industry . additional information concerning factors that could cause or contribute to such differences can be found in the following discussion , as well as in item 1 . a . - “ risk factors . ” overview general we provide specialized healthcare management services to health plans and other third party payors through our on trak program . our on trak program is designed to improve member health and at the same time lower costs to the insurer for underserved populations where behavioral health conditions are exacerbating co-existing medical conditions . the program utilizes member engagement and patient centric treatment that integrates evidence based medical and psychosocial interventions along with care coaching in a 52-week outpatient program . our initial focus has been members with substance use disorders , but we have plans to expand into other behavioral health conditions , including anxiety and depression . we currently operate our on trak for substance dependence program in florida , kansas , kentucky , louisiana , massachusetts , new jersey , oklahoma , west virginia and wisconsin . our strategy our business strategy is to provide a quality integrated medical and behavioral program to help health plans and other organizations treat and manage health plan members who 's behavioral health conditions are exaserbating co-existing medical conditions resulting in increased in-patient medical costs . we have initially focused on members with substance use disorders . we intend to grow our business through increased adoption by health plans and other payors of our on trak program for substance dependence , as well as expansion into other populations with high costs driven by other behavioral health conditions . key elements of our business strategy include : ● demonstrating the potential for improved clinical outcomes and reduced cost associated with using our on trak program with key managed care and other third-party payors ; ● educating third-party payors on the disproportionately high cost of their substance dependent population ; ● providing our on trak program to third-party payors for reimbursement on a case rate , fee for service , or monthly fee basis ; and ● generating outcomes data from our on trak program to demonstrate improved health and cost reductions , and utilize outcomes data to facilitate broader adoption . as an early entrant into offering integrated medical and behavioral programs for substance dependence , we believe we will be well positioned to address increasing market demand . we believe our on trak program will help fill the gap that exists today : a lack of programs that focus on smaller populations with disproportionately higher costs driven by behavioral health conditions to improve their health while reducing overall health care costs . 19 reporting segment we manage and report our operations through one business segment : healthcare services . story_separator_special_tag for example , the assumptions we have made for the expected volatility of our stock price have been based on the historical volatility of our stock , measured over a period generally commensurate with the expected term . if we were to use a different volatility than the actual volatility of our stock price , there may be a significant variance in the amounts of share-based expense from the amounts reported . the weighted average expected option term for 2014 and 2013 reflects the application of the simplified method set out in sec staff accounting bulletin no . 107 , which defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches . from time to time , we retain terminated employees as part-time consultants upon their resignation from the company . because the employees continue to provide services to us , their options continue to vest in accordance with the original terms . due to the change in classification of the option awards , the options are considered modified at the date of termination . the modifications are treated as exchanges of the original awards in return for the issuance of new awards . at the date of termination , the unvested options are no longer accounted for as employee awards and are accounted for as new non-employee awards . the accounting for the portion of the total grants that have already vested and have been previously expensed as equity awards is not changed . there were no employees moved to consulting for the twelve months ended december 31 , 2014 and 2013 , respectively . impairment of intangible assets we have capitalized significant costs for acquiring patents and other intellectual property directly related to our products and services . we review our intangible assets for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable . in reviewing for impairment , we compare the carrying value of such assets to the estimated undiscounted future cash flows expected from the use of the assets and or their eventual disposition . if the estimated undiscounted future cash flows are less than their carrying amount , we record an impairment loss to recognize a loss for the difference between the assets ' fair value and their carrying value . since we have not recognized significant revenue to date , our estimates of future revenue may not be realized and the net realizable value of our capitalized costs of intellectual property or other intangible assets may become impaired . during the twelve months ended december 31 , 2014 , we did not acquire any new intangible assets and as of december 31 , 2014 , all of our intangible assets consisted of intellectual property , which is not subject to renewal or extension . we recorded no total impairment charges for the year ended december 31 , 2014 , compared with $ 795,000 for the same period in 2013. warrant liabilities we issued warrants to purchase common stock in july 2010 , october 2010 , november 2010 , december 2011 , february 2012 , april 2012 , may 2012 , september 2012 , december 2012 , april 2013 , october 2013 , january 2014 , and may 2014. the warrants are being accounted for as liabilities in accordance with financial accounting standards board ( “ fasb ” ) accounting rules , due to anti-dilution provisions in some warrants that protect the holders from declines in our stock price and a requirement to deliver registered shares upon exercise of the warrants , which is considered outside our control . the warrants are marked-to-market each reporting period , using the black-scholes pricing model , until they are completely settled or expire . for the year ended december 31 , 2014 , we recorded a net loss of $ 19.9 million , compared with a net gain of $ 5.4 million for the same period in 2013 for the change in fair value of the warrant liability . 24 we will continue to mark the warrants to market value each reporting period , using the black-scholes pricing model until they are completely settled or expire . recen tly issued or newly adopted accounting pronouncements in february 2015 , the fasb issued accounting standards update ( “ asu ” ) 2015-02 , consolidation ( topic 810 ) : amendments to the consolidation analysis ( “ asu 2015-02 ” ) . asu 2015-02 modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities . asu 2015-02 is effective for fiscal years and interim periods within those years beginning after december 15 , 2015 , and requires either a retrospective or a modified restrospective approach to adoptions . early adoption is permitted . we are currently evaluating the potential impact of this standard on our consolidated financial statements , as well as the available transition methods . in august 2014 , the fasb issued asu 2014-15 , presentation of financial statements—going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern , ( “ asu 2014-15 ” ) . asu 2014-15 changes to the disclosure of uncertainties about an entity 's ability to continue as a going concern . under u.s. gaap , continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity 's liquidation becomes imminent . even if an entity 's liquidation is not imminent , there may be conditions or events that raise substantial doubt about the entity 's ability to continue as a going concern . because there is no guidance in u.s. gaap about management 's responsibility to evaluate whether there is substantial doubt about an entity 's ability to continue as a going concern or to provide related note disclosures ,
| summary of consolidated operating results loss from continuing operations before provision for income taxes for the twelve months ended december 31 , 2014 was $ 27.1 million compared with $ 2.9 million for the twelve months ended december 31 , 2013. the increase in loss from continuing operations was primarily due to an increase in revenue of $ 1.3 million and a decrease in fair value of warrants of $ 25.2 million . 20 revenues as of december 31 , 2014 , seven healthcare services contracts were operational resulting in a significant increase in the number of patients being treated compared with the same period in 2013. recognized revenue increased by $ 1.3 million , or 169 % for the period ended december 31 , 2014 , compared with the same period in 2013. some of the revenue related to these contracts is initially recorded to deferred revenue as the revenue is subject to performance guarantees , or in the case of case rates received upon enrollment , recognized ratably over the period of enrollment . operating expenses cost of healthcare services cost of healthcare services consists primarily of salaries related to our care coaches , healthcare provider claims payments to our network of physicians and psychologists , and fees charged by our third party administrators for processing these claims . the increase of $ 651,000 in cost of healthcare services for the year ended december 31 , 2014 compared with the same period in 2013 , relates primarily to the increase in members being treated , the mix in members treated , and the addition of care coaches and clinical care coordinators to our staff to manage the increasing number of customers we serve , as well as the increased numbers of enrolled members .
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advertising revenue is recorded net of agency commission at the time the advertisements are published in the newspaper and ratably over the period story_separator_special_tag forward-looking statements the following information should be read in conjunction with the other sections of this annual report on form 10-k. statements in this annual report on form 10-k concerning a. h. belo 's business outlook or future economic performance , anticipated profitability , revenues , expenses , dividends , capital expenditures , investments , dispositions , impairments , business initiatives , acquisitions , pension plan contributions and obligations , real estate sales , working capital , future financings and other financial and non-financial items that are not historical facts , are “ forward-looking statements ” as the term is defined under applicable federal securities laws . forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results to differ materially from those statements . such risks , uncertainties and factors include , but are not limited to the following : changes in capital market conditions and prospects , changes in advertising demand and newsprint prices ; newspaper circulation trends and other circulation matters , including changes in readership methods , patterns and demography ; audits and related actions by the alliance for audited media ; challenges implementing increased subscription pricing and new pricing structures ; challenges in achieving expense reduction goals in a timely manner and the resulting potential effect on operations ; challenges attracting and retaining key personnel ; challenges in consummating asset acquisitions or dispositions upon acceptable terms ; technological changes ; development of internet commerce ; industry cycles ; changes in pricing or other actions by new and existing competitors and suppliers ; consumer acceptance of new products and business initiatives ; labor relations ; regulatory , tax and legal changes ; adoption of new accounting standards or changes in existing accounting standards by the financial accounting standards board or other accounting standard-setting bodies or authorities ; the effects of company acquisitions , dispositions and co-owned ventures and investments ; pension plan matters ; general economic conditions and changes in interest rates ; significant armed conflict ; acts of terrorism ; and other factors beyond the company 's control , as well as other risks described elsewhere in this annual report on form 10-k and in the company 's other public disclosures and filings with the sec . overview a. h. belo , headquartered in dallas , texas , is a leading local news and information publishing company with commercial printing , distribution and direct mail capabilities , as well as expertise in emerging media and digital marketing . with a continued focus on extending the company 's media platform , a. h. belo is able to deliver news and information in innovative ways to a broad spectrum of audiences with diverse interests and lifestyles . the company publishes the dallas morning news ( www.dallasnews.com ) , texas ' leading newspaper and winner of nine pulitzer prizes ; the denton record-chronicle ( www.dentonrc.com ) , a daily newspaper operating in denton , texas , and various niche publications targeting specific audiences . a. h. belo offers digital marketing solutions through 508 digital and your speakeasy , llc and provides event promotion and marketing services through crowdsource . a. h. belo intends for the discussion of its financial condition and results of operations that follows to provide information that will assist in understanding its financial statements , the changes in certain key items in those statements from period to period , and the primary factors that accounted for those changes , as well as how certain accounting principles , policies and estimates affect its financial statements . certain current and prior year amounts related to the providence journal and the press-enterprise have been recast as discontinued operations . amounts in management 's discussion and analysis reflect continuing operations of the company unless otherwise noted . the results from continuing operations consist primarily of the dallas morning news and corporate activities . overview of significant transactions from continuing operations operating results for 2014 , 2013 and 2012 reflect continued challenges in print advertising revenue trends , primarily due to volume and rate declines , partially offset by increases in the company 's digital advertising and marketing services revenues . the company continues its efforts to diversify revenues through leveraging its brand , its personnel and its infrastructure in both organic new product development and in pursuit of acquisitions of related advertising and marketing services companies . during 2014 , the company expanded the reach of its crowdsource event marketing subsidiary by acquiring a controlling interest in untapped festivals and the assets of savor dallas . in january 2015 , the company acquired majority ownership of three companies specializing in local marketing automation , search engine marketing , direct mail and promotional products . these acquisitions will complement and expand the product and service offerings currently available to a. h. belo clients , thereby strengthening the company 's diversified product portfolio and allowing for greater penetration in a competitive advertising market . the company incurred $ 577 of legal and due diligence costs in 2014 , which were charged to operating expense , in conjunction with these acquisitions . a. h. belo corporation 2014 annual report on form 10-k page 17 during 2014 , the results of operations of the company were influenced by several significant transactions and events . in the first quarter , the company commenced printing services of the fort worth star-telegram at the company 's printing operations in plano , texas . the agreement between the dallas morning news , inc. and star-telegram , inc. is for an initial term of 10 years and has a renewal option to extend the contract . in april 2014 , the company received a cash distribution of $ 18,861 from classified ventures , an equity method investee , for its portion of the net sales proceeds for apartments.com , and recorded a gain of $ 18,479 . story_separator_special_tag the company acquired the assets of dg publishing , inc. in december 2012 and the company began publishing luxury design and wedding guide publications targeted to key segments of the dallas market in 2013. circulation – revenue decreased in 2014 due to a decline in home delivery and single copy paid print circulation volumes of 7.8 percent and 14.6 percent , respectively . these declines were partially offset by an effective rate increase of 6.1 percent and 13.4 percent in home delivery and single copy rates , respectively . in 2013 , revenue decreased due to 7.5 percent and 10.6 percent declines in paid print home delivery and single copy circulation volumes , respectively . printing , distribution and other – revenue increased 35.1 percent due to the commencement of printing services in march 2014 for the fort worth star-telegram , and due to expanded printing of local community newspapers . this category also incorporates expanded event marketing revenue for two untapped events as the company continues to leverage resources and relationships to further expand its advertising influence . these increases were partially offset by lower printing revenues associated with national publications . revenue remained flat year-over-year in 2013. page 20 a. h. belo corporation 2014 annual report on form 10-k operating costs and expenses the table below sets forth the components of the company 's operating expenses for the last three years . replace_table_token_7_th employee compensation and benefits – the company continues to implement measures to optimize its workforce and reduce risk associated with future obligations towards legacy employee benefit plans . expenses increased in 2014 primarily due to a $ 7,648 non-cash settlement charge recorded in the fourth quarter related to the recognition of prior year actuarial losses associated with liquidated pension obligations . this charge was substantially offset by lower salary and commissions expense of $ 4,625 , primarily due to headcount reductions at the company 's newspapers and corporate operations and lower sales ; and lower pension expense of $ 2,276 due to favorable returns on increased plan assets and the completion of payments toward obligations of discontinued plans . expenses decreased in 2013 due to completion of funding related to the pts plan in the second quarter of 2013 , lower headcount , cost control initiatives related to employee medical benefits and lower pension expense due to lower discount rates on the a. h. belo pension plans ' projected benefit obligations and higher returns due to increased plan assets . other production , distribution and operating costs – as a result of the company 's initiatives to develop new products and service offerings , expenses increased in 2014. increases were primarily due to higher temporary labor costs and delivery expenses of $ 3,383 associated with startup of printing operations for the fort worth star-telegram ; higher expenses of approximately $ 2,000 related to the company 's marketing services and event marketing operations as those segments continue to grow ; and higher costs associated with the growth in online classified advertising . consistent with the company 's efforts to contain costs while exploring new strategies , expenses decreased in 2013. lower legal , technology and sales promotion costs were offset by higher operating costs associated with new and growing marketing services operations . newsprint , ink and other supplies – expenses decreased in 2014 due to reduced newsprint costs associated with lower circulation volumes of company and certain third-party newspapers . newsprint consumption approximated 33,717 , 36,979 and 37,302 metric tons in 2014 , 2013 and 2012 , respectively , at an average cost per metric ton of $ 589 , $ 605 , and $ 614 , respectively . the average purchase price for newsprint was $ 617 , $ 620 and $ 649 per metric ton in 2014 , 2013 , and 2012 , respectively . supplement costs also decreased due to reduced outside publications purchased for resale . these decreases were partially offset by higher ink and production materials costs associated with the commencement of printing operations for the fort worth star-telegram at the company 's plano , texas productions facility . expenses increased in 2013 due to increased costs of supplements and ink and additional preprint mail costs , offset by lower newsprint costs . depreciation – expenses decreased in 2014 and 2013 due to a lower depreciable asset base as a higher level of in-service assets are fully depreciated . amortization – expense increased due to amortization of customer relationships acquired in 2014 and 2013 which are amortized over a useful life of three years . a. h. belo corporation 2014 annual report on form 10-k page 21 other the table below sets forth the other components of the company 's results of operations for the last three years . replace_table_token_8_th gains on equity method investments , net – gains on equity method investments increased by $ 91,629 in 2014 primarily due to gains of $ 18,479 and $ 77,092 related to classified ventures ' sale of apartments.com and the company 's sale of it 's membership interest in classified ventures , respectively . these gains were partially offset by an other-than-temporary impairment of $ 1,871 for the company 's investment in wanderful media . the company determined that an other-than-temporary decline occurred in the value of the investment after evaluating the estimated fair value of the investee as determined by an independent valuation specialist . the company attributes the impairment primarily to a decline in business related to wanderful media 's legacy products . other – other income in 2014 increased due to the receipt of a $ 3,540 economic parity payment from the former parent company in conjunction with the dissolution of the jointly-owned partnership holding the company 's investment in classified ventures , and from gains on real estate asset sales . other income decreased in 2013 due to lower gains on asset sales .
| results of continuing operations consolidated results of continuing operations this section contains a discussion and analysis of net operating revenues , expenses and other information relevant to an understanding of results of operations for 2014 , 2013 and 2012 . the table below sets forth the components of a. h. belo 's net operating revenues for the last three years . replace_table_token_5_th the company 's primary revenues are generated from advertising within its core newspapers , niche publications and related websites and from subscription and single copy sales of its printed newspapers . as a result of competitive and economic conditions , the newspaper industry has faced significant revenue decline over the past decade . the company has sought to diversify its revenues through development and investment in new product offerings , increased circulation rates and leveraging of its existing assets to offer cost efficient printing and distribution services to its local markets . through these efforts , the company limited the year-over-year revenue decline in 2014 to its lowest point since its separation from the former parent company in 2008. in 2014 , 2013 and 2012 , the company 's advertising revenue from the its core newspapers continues to be adversely affected by the shift of advertiser spending to other forms of media and the increased accessibility of free online news content , as well as news content from other sources , which resulted in a loss of advertising and paid circulation volumes and revenue . the most significant loss of advertising revenue was realized in its print display and classified categories . these categories , which represented 31.7 percent of consolidated revenue in 2012 , have declined to 26.6 percent in 2014 , and further declines are anticipated in future periods . decreases in print display and classified categories are indicative of continuing trends by advertisers towards digital advertising , which is widely available from many sources .
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101 two harbors investment corp. notes to the consolidated financial statements the company enters into interest rate derivative contracts for a variety of reasons , including minimizing fluctuations in earnings or market values on certain assets or liabilities that may be caused by changes in interest rates . the company may , at times , enter into various forward contracts including short securities , agency to-be-announced securities , or tbas , options , futures , swaps , and caps . due to the nature of these instruments , they may be in a receivable/asset position or a payable/liability position at the end of an accounting period . amounts payable to and receivable from the same party under contracts may be offset as long as the following conditions are met : ( a ) each of the two parties owes the other determinable amounts ; ( b ) the reporting party has the right to offset the amount owed with story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this annual report on form 10-k. general we are a maryland corporation focused on investing in , financing and managing agency residential mortgage-backed securities , or agency rmbs , non-agency securities , mortgage servicing rights , or msr , and other financial assets , which we collectively refer to as our target assets . we operate as a real estate investment trust , or reit , as defined under the internal revenue code of 1986 , as amended , or the code . we are externally managed by prcm advisers llc , or prcm advisers , which is a wholly owned subsidiary of pine river capital management l.p. , or pine river . our objective is to provide attractive risk-adjusted total return to our stockholders over the long term , primarily through dividends and secondarily through capital appreciation . we selectively acquire and manage an investment portfolio of our target assets , which is constructed to generate attractive returns through market cycles . we focus on asset selection and implement a relative value investment approach across various sectors within the mortgage market . our target assets include the following : agency rmbs ( which includes inverse interest-only agency securities classified as “ agency derivatives ” for purposes of u.s. generally accepted accounting principles , or u.s. gaap ) , meaning rmbs whose principal and interest payments are guaranteed by the government national mortgage association ( or ginnie mae ) , the federal national mortgage association ( or fannie mae ) , or the federal home loan mortgage corporation ( or freddie mac ) , or collectively , the government sponsored entities , or gses ; non-agency securities , meaning securities that are not issued or guaranteed by ginnie mae , fannie mae or freddie mac ; msr ; and other financial assets comprising approximately 5 % to 10 % of the portfolio . we generally view our target assets in two strategies that are based on our core competencies of understanding and managing prepayment and credit risk . our rates strategy includes assets that are sensitive to changes in interest rates and prepayment speeds , specifically agency rmbs and msr . our credit strategy includes assets with inherent credit risk , including non-agency securities . other assets include financial and mortgage-related assets other than the target assets in our rates and credit strategies , including certain non-hedging transactions that may produce non-qualifying income for purposes of the reit gross income tests . as opportunities in the residential mortgage marketplace change , we continue to evolve our business model . from a capital allocation perspective , we expect to continue to increase our allocation towards msr over time and allocate capital towards agency rmbs based on opportunities in the marketplace , the cost of financing and the cost of hedging interest rate , prepayment , credit and other portfolio risks . within our non-agency securities portfolio , we have a substantial emphasis on “ legacy ” securities , which consist of securities issued prior to 2009. we have also allocated capital towards “ new issue ” non-agency securities , which we believe have enabled us to find attractive returns and further diversify our non-agency securities portfolio . within our msr business , we purchase the right to control the servicing of residential mortgage loans from high-quality originators . we do not directly service the mortgage loans on our consolidated balance sheet , nor the mortgage loans underlying the msr we acquire ; rather , we contract with appropriately licensed third-party subservicers to handle substantially all servicing functions in the name of the subservicer . on april 26 , 2018 , we announced that we had entered into a definitive merger agreement pursuant to which we would acquire cys investments , inc. , or cys , a maryland corporation investing in primarily agency rmbs and treated as a reit for u.s. federal income tax purposes . the transaction was approved by the stockholders of both two harbors and cys on july 27 , 2018 , and the merger was completed on july 31 , 2018 , at which time cys became our wholly owned subsidiary . in exchange for all of the shares of cys common stock outstanding immediately prior to the effective time of the merger , we issued approximately 72.6 million new shares of common stock , as well as aggregate cash consideration of $ 15.0 million , to cys common stockholders . in addition , we issued 3 million shares of newly classified series d cumulative redeemable preferred stock and 8 million shares of newly classified series e cumulative redeemable preferred stock in exchange for all shares of cys 's series a and series b cumulative redeemable preferred stock outstanding prior to the effective time of the merger . the financial results of cys since the closing date of the acquisition have been included in our consolidated financial statements . story_separator_special_tag we have elected to be treated as a reit for u.s. federal income tax purposes . to qualify as a reit we are required to meet certain investment and operating tests and annual distribution requirements . we generally will not be subject to u.s. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders , do not participate in prohibited transactions and maintain our intended qualification as a reit . however , certain activities that we may perform may cause us to earn income which will not be qualifying income for reit purposes . we have designated certain of our subsidiaries as taxable reit subsidiaries , or trss , as defined in the code , to engage in such activities . we also operate our business in a manner that will permit us to maintain our exemption from registration under the investment company act of 1940 , as amended , or the 1940 act . while we do not currently originate or service residential mortgage loans , certain of our subsidiaries have obtained the requisite licenses and approvals to own and manage msr . overview our efforts in 2018 focused on three strategic objectives that we believe have positioned us for long-term success . managing an investment portfolio to generate attractive returns with balanced risks . we operate a hybrid reit model , diversifying our portfolio across agency rmbs and non-agency securities in combination with msr and derivative hedging instruments . we manage to an overall low level of interest rate exposure and leverage relative to our peers . we believe effectively managing an appropriate balance of risks within our portfolio is critical to providing attractive risk-adjusted returns to our stockholders and our ability to adjust our allocations and deploy capital across sectors allows us to optimize portfolio results over time . continuing to grow shareholder base and market capitalization . in 2018 , we completed the acquisition of cys , growing the company 's market capitalization and shareholder base , increasing the liquidity of the company 's stock and driving expense lower . maintaining “ best in class ” corporate governance , investor relations and disclosure practices . factors affecting our operating results our net interest income includes income from our securities portfolio , including the amortization of purchase premiums and accretion of purchase discounts , and income from our residential mortgage loans . net interest income , as well as our servicing income , net of subservicing expenses , will fluctuate primarily as a result of changes in market interest rates , our financing costs and prepayment speeds on our assets . interest rates , financing costs and prepayment rates vary according to the type of investment , conditions in the financial markets , competition and other factors , none of which can be predicted with any certainty . our operating results will also be affected by default rates and credit losses with respect to the mortgage loans underlying our non-agency securities and in our residential mortgage loan portfolio . 47 fair value measurement a significant portion of our assets and liabilities are reported at fair value and , therefore , our consolidated balance sheets and statements of comprehensive ( loss ) income are significantly affected by fluctuations in market prices . at december 31 , 2018 , approximately 92.5 % of our total assets , or $ 27.9 billion , consisted of financial instruments recorded at fair value . see note 9 - fair value to the consolidated financial statements , included in this annual report on form 10-k , for descriptions of valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models , key inputs to those models and significant assumptions utilized . although we execute various hedging strategies to mitigate our exposure to changes in fair value , we can not fully eliminate our exposure to volatility caused by fluctuations in market prices . although markets for asset-backed securities , including rmbs , have modestly stabilized since the severe dislocations experienced as a result of the 2008 financial crisis , these markets continue to experience volatility and , as a result , our assets and liabilities will be subject to valuation adjustment as well as changes in the inputs we use to measure fair value . any temporary change in the fair value of our available-for-sale , or afs , securities , excluding agency interest-only mortgage-backed securities , is recorded as a component of accumulated other comprehensive income and does not impact our earnings . our reported ( loss ) earnings for u.s. gaap purposes , or gaap net ( loss ) income , is affected , however , by fluctuations in market prices on the remainder of our financial assets and liabilities recorded at fair value , including interest rate swap , cap and swaption agreements and certain other derivative instruments ( i.e . , tbas , put and call options for tbas , markit ios total return swaps and inverse interest-only securities ) , which are accounted for as derivative trading instruments under u.s. gaap , agency interest-only mortgage-backed securities and msr . we have numerous internal controls in place to help ensure the appropriateness of fair value measurements . significant fair value measures are subject to detailed analytics and management review and approval . our entire investment portfolio reported at fair value is priced by third-party brokers and or by independent pricing providers . we generally receive three or more broker and vendor quotes on pass-through agency rmbs , and generally receive multiple broker or vendor quotes on all other securities , including interest-only agency rmbs , inverse interest-only agency rmbs , and non-agency securities . we also currently receive three vendor quotes for the msr in our investment portfolio .
| results of operations the following analysis focuses on financial results during the three and twelve months ended december 31 , 2018 and 2017 . interest income interest income increased from $ 195.1 million and $ 745.1 million for the three and twelve months ended december 31 , 2017 , respectively , to $ 252.0 million and $ 870.0 million for the same periods in 2018 due to the growth of our afs securities portfolio as a result of the acquisition of cys and purchases of agency securities with higher yields , offset by sales of retained interests from our on-balance sheet securitizations resulting in the deconsolidation of all securitization trusts in the fourth quarter of 2017 . 56 interest expense interest expense increased from $ 94.8 million and $ 350.2 million for the three and twelve months ended december 31 , 2017 , respectively , to $ 162.3 million and $ 519.7 million for the same periods in 2018 due to increased financing on afs securities as a result of the acquisition of cys and on msr due to portfolio growth , an increase in the proportion of total borrowings financed through repurchase agreements ( relative to fhlb advances ) and increases in the borrowing rates offered by counterparties , offset by sales of retained interests from our on-balance sheet securitizations resulting in the deconsolidation of all securitization trusts in the fourth quarter of 2017. net interest income the following tables present the components of interest income and average annualized net asset yield earned by asset type , the components of interest expense and average annualized cost of funds on borrowings incurred by liability and or collateral type , and net interest income and average annualized net interest rate spread for the three and twelve months ended december 31 , 2018 and 2017 : replace_table_token_17_th 57 replace_table_token_18_th ( 1 ) average asset balance represents average amortized cost on afs securities and agency derivatives and average unpaid principal balance , adjusted for
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as of december 31 , 2019 , the company had $ 1.4 billion of available borrowing capacity under the credit agreement , which was net of $ 375 million of borrowings outstanding and $ 2 million in letters of credit outstanding . the borrowing base under the credit agreement is determined at the discretion of the lenders , based on the collateral value of the company 's proved reserves that have been mortgaged to such lenders , and is subject to regular redeterminations on may 1 and november 1 of each year , as well as special redeterminations described in the credit agreement , in each case which may reduce the amount of the borrowing base . upon a redetermination of the borrowing base , either on a periodic or special redetermination date , if total outstanding story_separator_special_tag unless the context otherwise requires , the terms “ whiting ” , “ we ” , “ us ” , “ our ” or “ ours ” when used in this item refer to whiting petroleum corporation , together with its consolidated subsidiaries , whiting oil and gas corporation ( “ whiting oil and gas ” ) , whiting us holding company , whiting canadian holding company ulc , whiting resources corporation and whiting programs , inc. when the context requires , we refer to these entities separately . this document contains forward-looking statements , which give our current expectations or forecasts of future events . please refer to “ forward-looking statements ” at the end of this item for an explanation of these types of statements . overview we are an independent oil and gas company engaged in development , production , acquisition and exploration activities primarily in the rocky mountains region of the united states . our current operations and capital programs are focused on organic drilling opportunities and on the development of previously acquired properties , specifically on projects that we believe provide the greatest potential for repeatable success and production growth , while selectively pursuing acquisitions that complement our existing core properties and exploring other basins where we can apply our existing knowledge and expertise to build production and add proved reserves . as a result of lower crude oil prices during 2017 and 2018 , we significantly reduced our level of capital spending and focused our drilling activity on projects that provide the highest rate of return , while closely aligning our capital spending with cash flows generated from operations . during 2019 , we focused on developing our large resource play in the williston basin of north dakota and montana , while continuing to closely align our capital spending with cash flows generated from operations . we continually evaluate our property portfolio and sell properties when we believe that the sales price realized will provide an above average rate of return or when the property no longer matches the profile of properties we desire to own , such as the asset sales discussed below under “ acquisition and divestiture highlights ” and in the “ acquisitions and divestitures ” footnote in the notes to the consolidated financial statements . our revenue , profitability and future growth rate depend on many factors which are beyond our control , such as oil and gas prices , economic , political and regulatory developments , competition from other sources of energy , and the other items discussed under the caption “ risk factors ” in item 1a of this annual report on form 10-k. oil and gas prices historically have been volatile and may fluctuate widely in the future . the following table highlights the quarterly average nymex price trends for crude oil and natural gas prices since the first quarter of 2018 : replace_table_token_14_th lower oil , ngl and natural gas prices may not only decrease our revenues on a per unit basis , but may also reduce the amount of oil and natural gas that we can produce economically and therefore potentially lower our oil and gas reserve quantities . substantial and extended declines in oil , ngl and natural gas prices have resulted , and may result , in impairments of our proved oil and gas properties or undeveloped acreage ( such as the impairments discussed below under “ results of operations ” ) and may materially and adversely affect our future business , financial condition , cash flows , results of operations , liquidity or ability to finance planned capital expenditures . in addition , lower commodity prices may reduce the amount of our borrowing base under our credit agreement , which is determined at the discretion of our lenders and is based on the collateral value of our proved reserves that have been mortgaged to the lenders , as occurred with our most recent semi-annual redetermination where the borrowing base was lowered from $ 2.25 billion to $ 2.05 billion in october 2019. upon a redetermination , if total outstanding credit exposure exceeds the redetermined borrowing base , we will be required to prepay outstanding borrowings in an aggregate principal amount equal to such excess in six substantially equal monthly installments . alternatively , higher oil prices may result in significant mark-to-market losses being incurred on our commodity-based derivatives . for a discussion of material changes to our proved reserves from december 31 , 2018 to december 31 , 2019 and our ability to convert puds to proved developed reserves , refer to “ reserves ” in item 2 of this annual report on form 10-k. additionally , for a discussion relating to the minimum remaining terms of our leases , refer to “ acreage ” in item 2 of this annual report on form 10-k. 48 2019 highlights and future considerations story_separator_special_tag roman ' ; font-size:10pt ; margin:0pt 0pt 30pt 0pt ; '' > results of operations the following table sets forth selected operating data for the periods indicated : replace_table_token_15_th ( 1 ) before consideration of hedging transactions . ( 2 ) average nymex pricing weighted for monthly production volumes . story_separator_special_tag our depreciation , depletion and amortization ( “ dd & a ” ) expense increased $ 35 million in 2019 as compared to 2018. the components of our dd & a expense were as follows ( in thousands ) : replace_table_token_16_th dd & a increased between periods primarily due to $ 36 million in higher depletion expense , consisting of a $ 52 million increase related to a higher depletion rate between periods , partially offset by a $ 16 million decrease due to lower overall production volumes during 2019. on a boe basis , our overall dd & a rate of $ 17.82 for 2019 was 7 % higher than the rate of $ 16.73 in 2018. the primary factors contributing to this higher dd & a rate were a recent shift in our development activity to areas with higher average historical dd & a rates and downward revisions to proved reserves over the last twelve months . 52 exploration and impairment costs . our exploration and impairment costs decreased $ 13 million in 2019 as compared to 2018. the components of our exploration and impairment expense were as follows ( in thousands ) : replace_table_token_17_th exploration costs increased $ 15 million between periods primarily due to increased deficiency fees paid under our produced water disposal agreement driven by reduced drilling and completions at our redtail field during 2019 compared to 2018. impairment expense in 2019 primarily related to the amortization of leasehold costs associated with individually insignificant unproved properties . impairment expense in 2018 primarily related to ( i ) $ 29 million of leasehold amortization costs associated with individually insignificant unproved properties and ( ii ) $ 8 million in impairment write-downs of undeveloped acreage costs for leases where we have no future plans to drill . general and administrative expenses . we report general and administrative ( “ g & a ” ) expenses net of third-party reimbursements and internal allocations . the components of our g & a expenses were as follows ( in thousands ) : replace_table_token_18_th g & a expense before reimbursements and allocations increased $ 5 million during 2019 as compared to 2018 primarily due to an $ 8 million one-time net charge related to the company restructuring during 2019 as well as higher legal and litigation costs . in addition , g & a expense for 2018 includes $ 5 million of credits to bad debt expense related to the collection of certain receivables that had been previously deemed uncollectible . these factors resulting in increased g & a expense for 2019 were partially offset by lower employee compensation costs as a result of the restructuring . the decrease in reimbursements and allocations in 2019 was primarily the result of lower headcount due to the restructuring as well as lower development activity during the fourth quarter of 2019. refer to “ restructuring ” for more information on the company restructuring . our g & a expenses on a boe basis also increased between periods . g & a expense per boe amounted to $ 2.89 in 2019 , which represents an increase of $ 0.25 per boe ( 9 % ) from 2018. this increase was mainly due to the overall increase in g & a expense discussed above , as well as lower overall production volumes between periods . derivative loss , net . our commodity derivative contracts are marked to market each quarter with fair value gains and losses recognized immediately in earnings as derivative ( gain ) loss , net . cash flow , however , is only impacted to the extent that settlements under these contracts result in making or receiving a payment to or from the counterparty . derivative loss , net amounted to $ 54 million and $ 17 million for 2019 and 2018 , respectively . these losses primarily related to our collar , swap and option commodity derivative contracts and resulted from the upward shift in the futures curve of forecasted commodity prices for crude oil during the respective periods . for further information on our outstanding derivatives refer to the “ derivative financial instruments ” footnote in the notes to the consolidated financial statements . 53 interest expense . the components of our interest expense were as follows ( in thousands ) : replace_table_token_19_th the decrease in interest expense of $ 6 million between periods was mainly attributable to lower interest incurred on our notes in 2019 compared to 2018 resulting from the redemption of the 2019 notes in january 2018 , the tender offer for the 2020 convertible senior notes in september 2019 and the repurchases of the 2021 senior notes in september and october 2019. refer to the “ long-term debt ” footnote in the notes to the consolidated financial statements for more information on these debt transactions . our weighted average debt outstanding during 2019 was $ 2.9 billion versus $ 3.0 billion for 2018. our weighted average effective cash interest rate was 5.5 % during both 2019 and 2018. gain ( loss ) on extinguishment of debt . during 2019 , we recognized a gain on extinguishment of debt of $ 8 million . in september 2019 , we paid $ 299 million to purchase $ 300 million aggregate principal amount of the 2020 convertible senior notes in a cash tender offer and recognized a $ 4 million gain on extinguishment of debt . additionally , in september and october 2019 , we paid $ 96 million to repurchase $ 100 million aggregate principal amount of the 2021 senior notes and recognized a $ 4 million gain on extinguishment of debt . during 2018 , we redeemed all of the remaining $ 961 million aggregate principal amount of 2019 senior notes and recognized a $ 31 million loss on extinguishment of debt . refer to the “ long-term debt ” footnote in the notes to the consolidated financial statements for more information on these debt transactions . income tax expense ( benefit ) .
| operational highlights northern rocky mountains – williston basin our properties in the williston basin of north dakota and montana target the bakken and three forks formations . net production from the williston basin averaged 112.0 mboe/d for the fourth quarter of 2019 , representing a 1 % increase from 111.4 mboe/d in the third quarter of 2019. across our acreage in the williston basin , we have implemented customized , right-sized completion designs which utilize the optimum volume of proppant , fluids , and frac stages to increase well performance while reducing cost . we have increased stages pumped per day by focusing on new technologies such as quick-install wellhead connections and frac plug innovations . we plan to continue to use right-sized completion designs on wells we drill in 2020 , while also utilizing state-of-the-art drilling rigs , high-torque mud motors and 3-d bit cutter technology to reduce time-on-location and total well cost . as of december 31 , 2019 , we had four rigs active in the williston basin . we drilled 31 wells and put 35 wells on production in this area during the fourth quarter of 2019. first quarter 2020 production has been impacted by severe weather conditions and associated electric submersible pump failures on multiple high value wells . we estimate that this will impact first quarter 2020 production results by approximately 5 mboe/d . central rocky mountains – denver-julesburg basin our redtail field in the denver-julesburg basin ( “ dj basin ” ) in weld county , colorado targets the niobrara and codell/fort hays formations . net production from the redtail field averaged 10.4 mboe/d in the fourth quarter of 2019 , representing a 7 % decrease from 11.2 mboe/d in the third quarter of 2019. we have established production in the niobrara “ a ” , “ b ” and “ c ” zones and the codell/fort hays formations .
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prior to august 20 , 2018 , we operated in four reportable segments : manufacturing ; wheels & parts ; leasing & services ; and gbw joint venture . on august 20 , 2018 we entered into an agreement with our joint venture partner to discontinue the gbw railcar repair joint venture , which resulted in 12 repair shops returned to us . our segments are operationally integrated . the manufacturing segment , which currently operates from facilities in the u.s. , mexico , poland , romania and turkey , produces double-stack intermodal railcars , tank cars , conventional railcars , automotive railcar products and marine vessels . the wheels , repair & parts segment performs wheel and axle servicing ; railcar repair , refurbishment and maintenance ; as well as production of a variety of parts for the railroad industry in north america . the leasing & services segment owns approximately 8,100 railcars ( 6,300 railcars held as equipment on operating leases , 1,600 held as leased railcars for syndication and 200 held as finished goods inventory ) and provides management services for approximately 357,000 railcars for railroads , shippers , carriers , institutional investors and other leasing and transportation companies in north america as of august 31 , 2018. through unconsolidated affiliates we produce rail and industrial castings , tank heads and other components and we have an ownership stake in a railcar manufacturer in brazil and a lease financing warehouse . our total manufacturing backlog of railcar units as of august 31 , 2018 was approximately 27,400 units with an estimated value of $ 2.74 billion , of which 21,200 units are for direct sales and 6,200 units are for lease to third parties . approximately 3 % of backlog units and 2 % of the estimated value as of august 31 , 2018 was associated with our brazilian manufacturing operations which is accounted for under the equity method . backlog units for lease may be syndicated to third parties or held in our own fleet depending on a variety of factors . multi-year supply agreements are a part of rail industry practice . a portion of the orders included in backlog reflects an assumed product mix . under terms of the orders , the exact mix and pricing will be determined in the future , which may impact the dollar amount of backlog . marine backlog as of august 31 , 2018 was $ 61 million compared to $ 42 million as of august 31 , 2017. our backlog of railcar units and marine vessels is not necessarily indicative of future results of operations . certain orders in backlog are subject to customary documentation and completion of terms . customers may attempt to cancel or modify orders in backlog . historically , little variation has been experienced between the quantity ordered and the quantity actually delivered , though the timing of deliveries may be modified from time to time . we can not guarantee that our reported backlog will convert to revenue in any particular period , if at all . in august 2018 , greenbrier-astra rail entered into an agreement to take an approximately 68 % ownership stake in rayvag , a railcar manufacturing company based in adana , turkey that also provides maintenance services for railcars and manufactures bogies and spare parts for railcars in that region . the amount paid to acquire our ownership stake in rayvag was not material to our consolidated financial statements . 36 the greenbrier companies 2018 annual report overview revenue , cost of revenue , margin and operating profit presented below , include amounts from external parties and exclude intersegment activity that is eliminated in consolidation . ( in thousands ) 2018 2017 2016 revenue : manufacturing $ 2,044,586 $ 1,725,188 $ 2,096,331 wheels , repair & parts 347,023 312,679 322,395 leasing & services 127,855 131,297 260,798 2,519,464 2,169,164 2,679,524 cost of revenue : manufacturing 1,727,407 1,373,967 1,630,554 wheels , repair & parts 318,330 288,336 293,751 leasing & services 64,672 85,562 203,782 2,110,409 1,747,865 2,128,087 margin : manufacturing 317,179 351,221 465,777 wheels , repair & parts 28,693 24,343 28,644 leasing & services 63,183 45,735 57,016 409,055 421,299 551,437 selling and administrative 200,439 170,607 158,681 net gain on disposition of equipment ( 44,369 ) ( 9,740 ) ( 15,796 ) earnings from operations 252,985 260,432 408,552 interest and foreign exchange 29,368 24,192 13,502 earnings before income tax and earnings ( loss ) from unconsolidated affiliates 223,617 236,240 395,050 income tax expense ( 32,893 ) ( 64,014 ) ( 112,322 ) earnings before earnings ( loss ) from unconsolidated affiliates 190,724 172,226 282,728 earnings ( loss ) from unconsolidated affiliates ( 18,661 ) ( 11,764 ) 2,096 net earnings 172,063 160,462 284,824 net earnings attributable to noncontrolling interest ( 20,282 ) ( 44,395 ) ( 101,611 ) net earnings attributable to greenbrier $ 151,781 $ 116,067 $ 183,213 diluted earnings per common share $ 4.68 $ 3.65 $ 5.73 performance for our segments is evaluated based on operating profit . corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model . management does not allocate interest and foreign exchange or income tax expense for either external or internal reporting purposes . ( in thousands ) 2018 2017 2016 operating profit : manufacturing $ 240,901 $ 295,334 $ 415,094 wheels , repair & parts 16,731 14,984 19,948 leasing & services 88,481 31,904 51,723 corporate ( 93,128 ) ( 81,790 ) ( 78,213 ) $ 252,985 $ 260,432 $ 408,552 the greenbrier companies 2018 annual report 37 story_separator_special_tag renegotiation fees received during the year ended august 31 , 2017. manufacturing operating profit decreased $ 54.4 million or 18.4 % in 2018 compared to 2017 primarily attributed to a lower margin percentage from a change in product mix and increased costs associated with expanded international operations . this was partially offset by an increase in the volume of railcar deliveries . story_separator_special_tag the percentage of owned units on lease was 94.4 % at august 31 , 2018 , 92.1 % at august 31 , 2017 and 91.0 % at august 31 , 2016. gbw joint venture segment to reflect our 50 % share of gbw 's results , we recorded a net loss of $ 15.9 million and $ 9.7 million for the years ended august 31 , 2018 and 2017 , respectively , and earnings of $ 3.2 million for the year ended august 31 , 2016. the losses for the years ended august 31 , 2018 and 2017 primarily related to non-cash goodwill impairment losses recorded by gbw . gbw recorded a pre-tax goodwill impairment loss of $ 26.4 million in 2018 and $ 11.2 million in 2017. as we account for gbw under the equity method of accounting , our 50 % share of the non-cash goodwill impairment loss recognized by gbw was $ 9.5 million after-tax in 2018 and $ 3.5 million after-tax in 2017 which were included as part of earnings ( loss ) from unconsolidated affiliates on our consolidated statement of income . on august 20 , 2018 we entered into an agreement with our joint venture partner to discontinue the gbw railcar repair joint venture , which resulted in 12 repair shops returned to us . beginning on august 20 , 2018 , gbw joint venture was no longer considered a reportable segment . selling and administrative replace_table_token_7_th the greenbrier companies 2018 annual report 41 selling and administrative expense was $ 200.4 million or 8.0 % of revenue for the year ended august 31 , 2018 , $ 170.6 million or 7.9 % of revenue for the year ended august 31 , 2017 and $ 158.7 million or 5.9 % of revenue for the year ended august 31 , 2016. the $ 29.8 million increase in 2018 compared to 2017 was primarily attributed to a $ 10.1 million increase in professional fees , consulting and related costs associated with strategic business development , litigation and it initiatives , $ 8.8 million from the addition of astra rail 's selling and administrative costs and a $ 6.0 million increase in employee costs . the $ 11.9 million increase in 2017 compared to 2016 was primarily attributed to a $ 9.2 million increase in legal and consulting costs primarily associated with strategic business development , litigation and it initiatives . the increase was also attributed to the addition of astra rail 's selling and administrative costs which totaled $ 2.6 million since its acquisition on june 1 , 2017 and a $ 0.8 million increase in research and development costs primarily related to our european manufacturing operations . this was partially offset by a $ 1.7 million decrease in the revenue-based fees paid to our joint venture partner in mexico . net gain on disposition of equipment net gain on disposition of equipment was $ 44.4 million , $ 9.7 million and $ 15.8 million for the years ended august 31 , 2018 , 2017 and 2016 , respectively . net gain on disposition of equipment primarily includes the sale of assets from our lease fleet ( equipment on operating leases , net ) that are periodically sold in the normal course of business in order to take advantage of market conditions and to manage risk and liquidity and disposition of property , plant and equipment . the net gain on disposition of equipment in 2018 was higher than for the prior year primarily due to greater volumes of equipment sales as we rebalance our lease portfolio . the gain for the year ended august 31 , 2017 primarily consisted of $ 5.2 million in insurance proceeds received in excess of net book value on assets destroyed in fires at two of our manufacturing facilities and $ 4.5 million in gains realized on the disposition of leased assets and property , plant and equipment . the gain for the year ended august 31 , 2016 primarily consisted of $ 12.0 million in gains realized on the disposition of leased assets and property , plant and equipment and $ 3.5 million in insurance proceeds received in excess of net book value on assets destroyed in fires at a manufacturing facility and a wheels , repair & parts facility . interest and foreign exchange interest and foreign exchange expense was composed of the following : years ended august 31 , increase ( decrease ) ( in thousands ) 2018 2017 2016 2018 vs 2017 2017 vs 2016 interest and foreign exchange : interest and other expense $ 30,946 $ 23,519 $ 17,268 $ 7,427 $ 6,251 foreign exchange loss ( gain ) ( 1,578 ) 673 ( 3,766 ) ( 2,251 ) 4,439 $ 29,368 $ 24,192 $ 13,502 $ 5,176 $ 10,690 interest and foreign exchange increased $ 5.2 million in 2018 from 2017 primarily due to interest expense associated with our $ 275 million convertible senior notes due 2024 issued in february 2017 and additional interest expense due to the addition of astra rail . this was partially offset by the maturity of the $ 119 million convertible senior notes in april 2018 and higher foreign exchange gain in 2018. the change in foreign exchange loss ( gain ) was primarily attributed to the change in the mexican peso relative to the u.s. dollar and the change in the polish zloty exchange rates relative to the euro .
| consolidated results replace_table_token_3_th * not meaningful through our integrated business model , we provide a broad range of products and services in each of our segments , which have various average selling prices and margins . the demand for and mix of products and services delivered changes from period to period , which causes fluctuations in our results of operations . the 16.1 % increase in revenue for the year ended august 31 , 2018 as compared to the year ended august 31 , 2017 was primarily due to an 18.5 % increase in manufacturing revenue . the increase in manufacturing revenue was primarily due to a 21.0 % increase in the volume of railcar deliveries and a change in product mix . the increase was also attributed to an 11.0 % increase in wheels , repair & parts revenue primarily as a result of higher wheel set and component volumes due to an increase in demand and an increase in scrap metal pricing . the 19.0 % decrease in revenue for the year ended august 31 , 2017 as compared to the year ended august 31 , 2016 was primarily due to a 17.7 % decrease in manufacturing revenue . the decrease in manufacturing revenue was primarily due to a 22.7 % decrease in the volume of railcar deliveries which was partially offset by a higher average selling price . the decrease was also due to a 49.7 % decrease in leasing & services revenue , primarily the result of a decrease in the sale of railcars which we had purchased from third parties with the intent to resell them . the 20.7 % increase in cost of revenue for the year ended august 31 , 2018 as compared to the year ended august 31 , 2017 was primarily due to a 25.7 % increase in manufacturing cost of revenue .
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we have been selling solar energy to residential customers through a variety of offerings since we were founded in 2007. we , either directly or through one of our solar partners , install a solar energy system on a customer 's home and either sell the system to the customer or , as is more often the case , sell the energy generated by the system to the customer pursuant to a lease or power purchase agreement ( “ ppa ” ) with no or low upfront costs . we refer to these leases and ppas as “ customer agreements. ” following installation , a system is interconnected to the local utility grid . the home 's energy usage is provided by the solar energy system , with any additional energy needs provided by the local utility . any excess solar energy , including amounts in excess of battery storage , that is not immediately used by the customers is exported to the utility grid using a bi-directional utility net meter , and the customer generally receives a credit for the excess energy from their utility to offset future usage of utility-generated energy . on july 6 , 2020 , we entered into an agreement and plan of merger ( the “ merger agreement ” ) with vivint solar and viking merger sub , inc. , a delaware corporation and our direct wholly owned subsidiary . the acquisition of vivint solar was completed on october 8 , 2020 pursuant to the terms of the merger agreement . as part of this merger , we welcomed approximately 3,800 employees from vivint solar to sunrun , bringing the total employees to approximately 8,500 as of december 31 , 2020. we also added approximately 210,000 customers and 1,441 megawatts to our existing fleet . the merger is expected to support continued growth through stronger differentiated sales channels , expanding customers ' access to the best offerings including battery storage solutions , improving cost efficiency from greater scale and improved access to project finance and other capital at lower costs and better terms . we offer our solar service offerings both directly to the customer and through our solar partners , which include sales and installation partners , and strategic partners , which include retail partners . in addition , we sell solar energy systems directly to customers for cash . we also sell solar energy panels and other products ( such as racking ) to resellers . as of december 31 , 2020 , we provided our solar services to customers and sold solar energy panels and other products to resellers throughout the united states . more than 40 % of our cumulative systems deployed are in california . we compete mainly with traditional utilities . in the markets we serve , our strategy is to price the energy we sell below prevailing local retail electricity rates . as a result , the price our customers pay under our solar service offerings varies depending on the state where the customer lives , the local traditional utility that otherwise provides electricity to the customer , as well as the prices other solar energy companies charge in that region . even within the same neighborhood , site-specific characteristics drive meaningful variability in the revenue and cost profiles of each home . using our proprietary technology , we target homes with advantageous revenue and cost characteristics , which means we are often able to offer pricing that allows customers to save more on their energy bill while maintaining our ability to meet our targeted returns . for example , with the insights provided by our technology , we can offer competitive pricing to customers with homes that have favorable characteristics , such as roofs that allow for easy installation , high electricity consumption , or low shading , effectively passing through the cost savings we are able to achieve on these installations to the customer . our ability to offer customer agreements depends in part on our ability to finance the purchase and installation of the solar energy systems by monetizing the resulting customer cash flows and related commercial investment tax credits ( “ commercial itcs ” ) , accelerated tax depreciation and other incentives from governments and local utilities . we monetize these incentives under tax equity investment funds , which are generally structured as non-recourse project financings . since inception we have raised numerous tax equity investment funds to finance the installation of solar energy systems . from time to time , we may repurchase investors ' interests in our tax equity investment funds after the recapture period of the relevant tax incentives . we intend to establish additional investment funds and may also use debt , equity and other financing strategies to fund our growth . 51 in addition , completing the sale and installation of a solar energy system requires many different steps including a site audit , completion of designs , permitting , installation , electrical sign-off and interconnection . customers may cancel their customer agreements with us , subject to certain conditions , during this process until commencement of installation . customer cancellation rates can change over time and vary between markets . recent developments convertible senior notes offering on january 25 , 2021 , we entered into a purchase agreement ( the “ purchase agreement ” ) with credit suisse securities ( usa ) llc and morgan stanley & co. llc , as representatives of the several initial purchasers ( the “ purchasers ” ) , to issue and sell $ 350 million aggregate principal amount of 0 % convertible senior notes due 2026 ( the “ notes ” ) in a private placement to qualified institutional buyers pursuant to rule 144a under the securities act . the notes were sold to the purchasers pursuant to an exemption from the registration requirements of the securities act afforded by section 4 ( a ) ( 2 ) of the securities act . story_separator_special_tag these assets are attractive to fund investors due to the long-term , recurring nature of the cash flows generated by our customer agreements , the high credit scores of our customers , the fact that energy is a non-discretionary good and our low loss rates . in addition , fund investors can receive attractive after-tax returns from our investment funds due to their ability to utilize commercial itcs , accelerated depreciation and certain government or utility incentives associated with the funds ' ownership of solar energy systems . as of december 31 , 2020 , we had 63 active investment funds , which are described below . we have established different types of investment funds to implement our asset monetization strategy . depending on the nature of the investment fund , cash may be contributed to the investment fund by the investor upfront or in stages based on milestones associated with the design , construction or interconnection status of the solar energy systems . the cash contributed by the fund investor is used by the investment fund to purchase solar energy systems . the investment funds either own or enter into a master lease with a sunrun subsidiary for the solar energy systems , customer agreements and associated incentives . we receive on-going cash distributions from the investment funds representing a portion of the monthly customer payments received . we use the upfront cash , as well as on-going distributions to cover our costs associated with designing , purchasing and installing the solar energy systems . in addition , we also use debt , equity and other financing strategies to fund our operations . the allocation of the economic benefits between us and the fund investor and the corresponding accounting treatment varies depending on the structure of the investment fund . we currently utilize three legal structures in our investment funds , which we refer to as : ( i ) pass-through financing obligations , ( ii ) partnership flips and ( iii ) joint venture ( “ jv ” ) inverted leases . we reflect pass-through financing obligations on our consolidated balance sheet as a pass-through financing obligation . we record the investor 's interest in partnership flips or jv inverted leases ( which we define collectively as “ consolidated joint ventures ” ) as noncontrolling interests or redeemable noncontrolling interests . these consolidated joint ventures are usually redeemable at our option and , in certain cases , at the investor 's option . if redemption is at our option or the consolidated joint ventures are not redeemable , we record the investor 's interest as a noncontrolling interest and account for the interest using the hypothetical liquidation at book value ( “ hlbv ” ) method . if the investor has the option to put their interest to us , we record the investor 's interest as a redeemable noncontrolling interest at the greater of the hlbv and the redemption value . 53 the table below provides an overview of our current investment funds ( dollars in millions ) : consolidated joint ventures pass-through financing obligations partnership flip jv inverted lease consolidation owner entity consolidated , tenant entity not consolidated single entity , consolidated owner and tenant entities consolidated balance sheet classification pass-through financing obligation redeemable noncontrolling interests and noncontrolling interests redeemable noncontrolling interests and noncontrolling interests revenue from commercial itcs recognized on the pto date none none method of calculating investor interest effective interest rate method greater of hlbv or redemption value ; or pro rata greater of hlbv or redemption value ; or pro rata liability balance as of december 31 , 2020 $ 340.4 n/a n/a noncontrolling interest balance ( redeemable or otherwise ) as of december 31 , 2020 n/a $ 1,167.6 $ 43.9 for further information regarding our investment funds , including the associated risks , see item 1a . risk factors — '' our ability to provide our solar service offerings to customers on an economically viable basis depends in part on our ability to finance these systems with fund investors who seek particular tax and other benefits . `` , note 11 , project equity financing , note 13 , pass-through financing obligations , note 14 , vie arrangements and note 15 , redeemable noncontrolling interests to our consolidated financial statements appearing elsewhere in this annual report on form 10-k. pass-through financing obligations pass-through financing obligations . in this investment fund structure , we and the fund investor each utilize separate entities to facilitate the pass-through of the commercial itc or u.s. treasury grants to the fund investors . we contribute solar energy systems to an “ owner ” entity in exchange for interests in the owner entity , and the fund investors contribute cash to a “ tenant ” entity in exchange for interests in the tenant entity . under our pass-through financing obligation structure , in accordance with the provisions of fasb , accounting standards codification topic 810 ( “ asc 810 ” ) consolidation , we have determined that we are the primary beneficiary of the owner entity , and accordingly , we consolidate that entity . we have also determined that we are not the primary beneficiary of the tenant entity , and accordingly , we do not consolidate that entity . in this investment fund structure , the investors make a series of large up-front payments as well as , in some instances , subsequent smaller quarterly lease payments through their respective tenant entity to the corresponding owner entity in exchange for the assignment of cash flows from customer agreements and certain other benefits associated with the customer agreements and related solar energy systems . we account for the payments from investors as borrowings by recording the proceeds received as financing obligations . the financing obligation is reduced over a period of approximately 22 years , or over seven years in the case of one fund , by customer payments under the customer agreements , u.s. treasury grants ( where applicable ) ; and proceeds from the contracted resale of srecs as they are received by the investor .
| results of operations the results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. our annual report on form 10-k for the year ended december 31 , 2019 includes a discussion and analysis of our financial condition and results of operations for the year ended december 31 , 2018 in item 7. of part ii , “ management 's discussion and analysis of financial condition and results of operations. ” we completed the acquisition of vivint solar on october 8 , 2020 , which plays a significant role in the year over year changes discussed below , as commencing from the acquisition date our consolidated financial statements include the assets , liabilities , operating results and cashflows of vivint solar . further information about the acquisition of vivint solar can be found in note 3 , acquisitions to our consolidated financial statements included elsewhere in this annual report on form 10-k. 61 replace_table_token_6_th comparison of the years ended december 31 , 2020 and 2019 revenue replace_table_token_7_th 62 customer agreements and incentives . revenue from customer agreements increased by $ 87.0 million . revenue from vivint solar customer agreements from the acquisition date through december 31 , 2020 , accounted for $ 32.5 million of the increase . the remaining $ 54.5 million increase was due to both an increase in solar energy systems under customer agreements being placed in service in 2020 and a full year of revenue recognized in 2020 for systems placed in service in 2019 versus only a partial amount of such revenue related to the period in which the assets were in service in 2019. revenue from incentives , which consists of sales of commercial itcs and srecs , increased by $ 9.3 million when compared to the prior year .
| 5,414 |
( b ) biodegradable polymers ( “ bcpa 's ” ) , also known as tpa 's , used by the petroleum , chemical , utility and mining industries to prevent corrosion and scaling in water piping . this product can also be used in detergents to increase biodegradability and in agriculture to increase crop yields by enhancing fertilizer uptake . the accounting policies of the segments are the same as those described in note 2 , significant accounting policies . the company evaluates performance based on profit or loss from operations before income taxes , not including nonrecurring gains and losses and foreign exchange gains and losses . the company 's reportable segments are strategic business units that offer different , but synergistic products and services . they are managed separately because each business requires different technology and marketing strategies . year ended december 31 , 2020 : replace_table_token_38_th f- 26 year ended december 31 , 2019 : replace_table_token_39_th sales by territory are shown below : replace_table_token_40_th the company 's long-lived assets ( property , equipment , intangibles , goodwill , leaseholds , patents and right of use assets ) are located in canada and the united states as follows : replace_table_token_41_th three customers accounted for $ 14,713,127 ( 47 % ) of sales made in 2020 ( 2019 - $ 12,814,506 or 47 % ) . 20. subsequent events . the company issued 32,000 shares to employees and 20,000 shares to consultants upon the exercise of stock options in the three months ended march 31 , 2021. f- 27 item 9. changes in and disagreements with accountants on accounting and financial disclosure . none . item 9a . controls and procedures . we maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports to the sec is recorded , processed , summarized and reported within the time periods specified in the sec 's rules and regulations , and that such information is accumulated and communicated to our management , including our principal executive officer and principal financial officer , as appropriate , to allow timely decisions regarding required disclosure . our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching our desired disclosure control objectives . as of the end of the period covered by this annual report on form 10-k for the year ended december 31 , 2020 we carried out an evaluation , under the supervision and with the participation of management , including our principal executive officer and principal financial officer , of the effectiveness of the design and operation of our disclosure controls and procedures ( as defined under rules 13a-15 ( e ) and 15d-15 ( e ) under the securities exchange act of 1934 , as amended ) . based upon that evaluation , our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective . management 's report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting . as defined by the securities and exchange commission , internal control over financial reporting is a process designed by , or under the supervision of our principal executive officer and principal financial officer and implemented by our board of directors , management and other personnel , to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements in accordance with u.s. generally accepted accounting principles . our internal control over financial reporting includes those policies and procedures that ( 1 ) pertain to the maintenance of records that , in reasonable detail , accurately and fairly reflect our transactions and dispositions of our assets ; ( 2 ) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with u.s. generally accepted accounting principles , and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors ; and ( 3 ) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use or disposition of our assets that could have a material effect story_separator_special_tag story_separator_special_tag cash . we do not have any commitments or arrangements from any person to provide us with any equity capital . see note 2 to the consolidated financial statements included as part of this report for a description of our significant accounting policies . critical accounting policies and estimates allowances for product returns . we grant certain of our customers the right to return product which they are unable to sell . upon sale , we evaluate the need to record a provision for product returns based on our historical experience , economic trends and changes in customer demand . allowances for doubtful accounts receivable . we evaluate our accounts receivable to determine if they will ultimately be collected . this evaluation includes significant judgments and estimates , including an analysis of receivables aging and a review of large accounts . if , for example , the financial condition of a customer deteriorates resulting in an impairment of its ability to pay or a pattern of late payment develops , an allowance may be required . provisions for inventory obsolescence . we may need to record a provision for estimated obsolescence and shrinkage of inventory . our estimates would consider the cost of inventory , the estimated market value , the shelf life of the inventory and our historical experience . if there are changes to these estimates , provisions for inventory obsolescence may be necessary . valuation of goodwill and intangible assets . we consider goodwill and intangible assets to determine if there are qualitative factors which exist which may indicate that the carrying value exceeds the fair value . our estimates are based upon an assessment story_separator_special_tag ( b ) biodegradable polymers ( “ bcpa 's ” ) , also known as tpa 's , used by the petroleum , chemical , utility and mining industries to prevent corrosion and scaling in water piping . this product can also be used in detergents to increase biodegradability and in agriculture to increase crop yields by enhancing fertilizer uptake . the accounting policies of the segments are the same as those described in note 2 , significant accounting policies . the company evaluates performance based on profit or loss from operations before income taxes , not including nonrecurring gains and losses and foreign exchange gains and losses . the company 's reportable segments are strategic business units that offer different , but synergistic products and services . they are managed separately because each business requires different technology and marketing strategies . year ended december 31 , 2020 : replace_table_token_38_th f- 26 year ended december 31 , 2019 : replace_table_token_39_th sales by territory are shown below : replace_table_token_40_th the company 's long-lived assets ( property , equipment , intangibles , goodwill , leaseholds , patents and right of use assets ) are located in canada and the united states as follows : replace_table_token_41_th three customers accounted for $ 14,713,127 ( 47 % ) of sales made in 2020 ( 2019 - $ 12,814,506 or 47 % ) . 20. subsequent events . the company issued 32,000 shares to employees and 20,000 shares to consultants upon the exercise of stock options in the three months ended march 31 , 2021. f- 27 item 9. changes in and disagreements with accountants on accounting and financial disclosure . none . item 9a . controls and procedures . we maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports to the sec is recorded , processed , summarized and reported within the time periods specified in the sec 's rules and regulations , and that such information is accumulated and communicated to our management , including our principal executive officer and principal financial officer , as appropriate , to allow timely decisions regarding required disclosure . our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching our desired disclosure control objectives . as of the end of the period covered by this annual report on form 10-k for the year ended december 31 , 2020 we carried out an evaluation , under the supervision and with the participation of management , including our principal executive officer and principal financial officer , of the effectiveness of the design and operation of our disclosure controls and procedures ( as defined under rules 13a-15 ( e ) and 15d-15 ( e ) under the securities exchange act of 1934 , as amended ) . based upon that evaluation , our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective . management 's report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting . as defined by the securities and exchange commission , internal control over financial reporting is a process designed by , or under the supervision of our principal executive officer and principal financial officer and implemented by our board of directors , management and other personnel , to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements in accordance with u.s. generally accepted accounting principles . our internal control over financial reporting includes those policies and procedures that ( 1 ) pertain to the maintenance of records that , in reasonable detail , accurately and fairly reflect our transactions and dispositions of our assets ; ( 2 ) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with u.s. generally accepted accounting principles , and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors ; and ( 3 ) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use or disposition of our assets that could have a material effect story_separator_special_tag story_separator_special_tag cash . we do not have any commitments or arrangements from any person to provide us with any equity capital . see note 2 to the consolidated financial statements included as part of this report for a description of our significant accounting policies . critical accounting policies and estimates allowances for product returns . we grant certain of our customers the right to return product which they are unable to sell . upon sale , we evaluate the need to record a provision for product returns based on our historical experience , economic trends and changes in customer demand . allowances for doubtful accounts receivable . we evaluate our accounts receivable to determine if they will ultimately be collected . this evaluation includes significant judgments and estimates , including an analysis of receivables aging and a review of large accounts . if , for example , the financial condition of a customer deteriorates resulting in an impairment of its ability to pay or a pattern of late payment develops , an allowance may be required . provisions for inventory obsolescence . we may need to record a provision for estimated obsolescence and shrinkage of inventory . our estimates would consider the cost of inventory , the estimated market value , the shelf life of the inventory and our historical experience . if there are changes to these estimates , provisions for inventory obsolescence may be necessary . valuation of goodwill and intangible assets . we consider goodwill and intangible assets to determine if there are qualitative factors which exist which may indicate that the carrying value exceeds the fair value . our estimates are based upon an assessment
| results of operations we have three product lines . the first is a chemical ( “ ewcp ” ) used in swimming pools and spas . the product forms a thin , transparent layer on the water 's surface . the transparent layer slows the evaporation of water , allowing the water to retain a higher temperature for a longer period of time thereby reducing the energy required to maintain the desired temperature of the water . a modified version of ewcp can also be used in reservoirs , potable water storage tanks , livestock watering pods , canals , and irrigation ditches for the purpose of reducing evaporation . the second product , biodegradable polymers ( “ tpas ” ) , is used by the petroleum , chemical , utility and mining industries to prevent corrosion and scaling in water piping . tpas can also be used to increase biodegradability in detergents and in the agriculture industry to increase crop yields by enhancing fertilizer uptake . the third product line is nitrogen conservation products for the agriculture industry . these products decrease the loss of nitrogen fertilizer after application to the field and allow less fertilizer to be used . these products are considered tpa products and are made and sold by our tpa division . material changes in the line items in our statement of income and comprehensive income for the year ended december 31 , 2020 as compared to the same period last year , are discussed below : item increase ( i ) or decrease ( d ) reason sales ewcp products d decrease in customer orders . tpa products i growth in most product lines . administrative salaries d decrease in the canadian dollar decreased our administrative salaries when reported in us dollars . interest expense d decreased debt resulted in decreased interest expense .
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f-13 oragenics , inc. notes to financial statements ( continued ) december 31 , 2013 and 2012 july 2012 private placement issuance-purchasers on july 30 , 2012 , the company entered into a stock purchase agreement ( the purchase agreement ) with certain accredited investors ( the purchasers ) pursuant to which the company : ( i ) sold to the purchasers an aggregate of 8,666,665 shares of the company 's common stock at a price per share of $ 1.50 ( the common shares ) for aggregate gross proceeds of approximately $ 13,000,000 ( the story_separator_special_tag the following information should be read in conjunction with the financial statements , including the notes thereto , included elsewhere in this form 10-k. this discussion contains certain forward-looking statements that involve risks and uncertainties . our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors , including , but not limited to , those set forth herein and elsewhere in this form 10-k. overview we are focused on becoming the world leader in novel antibiotics against infectious disease and probiotics for oral health in humans and pets . oragenics also develops , markets and sells proprietary otc probiotics specifically designed to enhance oral health for humans and pets , under the brand names evora and probiora in more than 13 countries worldwide . our antibiotics members of our scientific team discovered that a certain bacterial strain produces mu1140 , a molecule belonging to the novel class of antibiotics known as lantibiotics . lantibiotics , such as mu1140 , are highly modified peptide antibiotics made by a small group of gram positive bacterial species . approximately 60 lantibiotics have been discovered since 1927 when the first lantibiotic , nisin , was discovered . we believe lantibiotics are generally recognized by the scientific community to be potent antibiotic agents . we have performed preclinical testing on mu1140 , which has demonstrated the molecule 's novel mechanism of action . mu1140 has proven active preclinically against all gram positive bacteria against which it has been tested , including those responsible for a number of healthcare associated infections , or hais . the most common hais are caused by drug-resistant bacteria , including methicillin-resistant staphylococcus aureus , or mrsa , vancomycin-resistant enterococcus faecalis , or vre ; and clostridium difficile , or c. diff . we believe the need for novel antibiotics is increasing as a result of the growing resistance of target pathogens to existing fda approved antibiotics on the market . the challenge presented by lantibiotics is that they have been difficult to investigate for their clinical usefulness as a therapeutic agent in the treatment of infectious diseases due to a general inability to produce or synthesize sufficient quantities of pure amounts of these molecules . standard fermentation methods are used to make a variety of currently marketed antibiotics . when traditional fermentation methods are used to make lantibiotics the result is the production of only minute amounts of the lantibiotic . in order to meet the challenge associated with producing sufficient quantities of mu1140 for our clinical trials and ultimately our commercialization efforts , in june 2012 , we entered into the lantibiotic ecc with intrexon for the development and commercialization of the native strain of mu1140 using intrexon 's advanced transgene and cell engineering platforms . we expect to pursue our research and development efforts with intrexon in accordance with the terms of the lantibiotic ecc toward the development of the mu1140 molecule and potential derivatives of the molecule . we commenced limited preclinical activities on mu1140 developed under the lantibiotic ecc with intrexon , in the second half of 2013. further preclinical activities are expected to include toxicity results , pharmacokinetic studies , and efficacy studies in animals . this work will be done solely by us through the use of outside contractors . pursuit of clinical trials toward the goal of ultimately obtaining regulatory approval will depend upon further successful advancements in our research collaboration efforts with intrexon and our efforts to have additional product manufactured . developments from these efforts will dictate our regulatory path . if our preclinical work is successful , we would expect to engage in pre investigational new drug ( ind ) meetings with the fda in the second half of 2014 and thereafter be in a position to file an ind application with the application with the fda by the second half of 2015 . 51 through our work with intrexon , we have been able to produce an exponential increase in the fermentation titer of the target compound mu1140 and the discovery of a new purification process for mu1140 . we believe these developments represent progress toward our goal of commercial production of sufficient quantities of mu1140 and deliver a step in validating the lantibiotics platform targeting infectious diseases . previously , the ability to manufacture mu1140 by fermentation was originally thought not to be commercially feasible due to low titers and difficulties in purification . in addition to the optimization of fermentation and purification strategies , we are working to leverage intrexon 's genetic and cell engineering expertise to produce homologs of mu1140 toward the goal of establishing a pipeline of new lantibiotics . research on the production capability of new lantibiotic analogs using genetically modified bacteria continues . manufacturing requirements and methods for producing mu1140 , or a homolog , will primarily be dependent upon the end results of our efforts under the lantibiotic ecc with intrexon . we are working with a third party manufacturer to produce additional quantities of mu1140 , or a designated homolog , based upon the developments achieved from our work with intrexon . the additional quantities of mu1140 , or a designated homolog , are needed for the consummation and pursuit of our preclinical testing activities , which we expect to commence in the first half of 2014. our probiotic products we are marketing a variety of probiotic products that we developed . story_separator_special_tag lpt3-04 is a natural occurring dietary substance with an excellent safety and tolerance profile that is believed to support weight loss in overweight men and women . lpt3-04 is normally consumed in the human diet in small amounts , in the course of our smart replacement therapy research , our scientific team also discovered that consumption of a significant amount of lpt3-04 , resulted in dose-dependent weight loss in experimental animal models . in december 2013 we entered into an exclusive licensing agreement for our lpt3-04 weight-loss product candidate with lpthera llc for further development of this technology . about us we were incorporated in november 1996 and commenced operations in 1999. we consummated our initial public offering in june 2003. we have devoted substantially all of our available resources to the commercialization of our probiora3 products as well as our discovery efforts comprising research and development , clinical trials for our product candidates , protection of our intellectual property and the general and administrative support of these operations . we have generated limited revenues from grants and probiora3 product sales through december 31 , 2013 , and have principally funded our operations through the sale of debt and equity securities , including the exercise of warrants issued in connection with these financing transactions . prior to 2008 our revenues were derived solely from research grants . since 2008 , our revenues have also included sales of our probiora3 products , which we initiated in late 2008. for the years ended december 31 , 2013 and 2012 , our net revenues were $ 1,032,233 and $ 1,331,764 , respectively . as of december 31 , 2013 , we had an accumulated deficit of $ 70,155,116 and we have yet to achieve profitability . we incurred net losses of $ 16,068,754 and $ 13,090,446 for the years ended december 31 , 2013 and 2012 , respectively . we expect to incur significant and increasing operating losses for the foreseeable future as we seek to advance our product candidates through preclinical testing and clinical trials to ultimately obtain regulatory approval and eventual commercialization . we will need to raise additional capital . adequate additional funding may not be available to us on acceptable terms , or at all . we expect that research and development expenses will increase along with general and administrative costs , as we grow and operate our business . there can be no assurance that additional capital will be available to us on acceptable terms , if at all . 53 financial overview net revenues our revenues prior to 2008 consisted exclusively of grant funding from government agencies under the national science foundation 's , or nsf , and national institutes of health 's , or nih , small business innovation research , or sbir , grants . since the initial launch of our probiora3 products in late 2008 , our net revenues for the year ended december 31 , 2008 and thereafter , also included sales of our probiora3 products . sales of our probiora3 products were $ 949,593 and $ 1,194,878 for the years ended december 31 , 2013 and 2012 , respectively . future increased in net revenue for our probiora3 products will depend on a number of factors , including our ability to successfully engage in marketing efforts related to our probiora3 products . our marketing efforts for our probiora3 products have had limited success to date as revenues have not significantly increased from period to period . we continue to consider options for marketing our probiora3 products that can be cost-effective as we seek to manage the use of our cash resources relative to research and development for our other product candidates . we expect that our future revenues will fluctuate from quarter to quarter as a result of the volume of sales of our products and the amount of license fees , research and development reimbursements , milestone and other payments from any license or strategic partnerships we may enter into in the future . cost of goods sold our cost of goods sold includes the production and manufacture of our probiora3 products , as well as shipping and processing expenses and scrap expense . scrap expense represents product rework charges , inventory adjustments , inventory replacement reserves , and damaged inventory . because our probiora3 products contain live organisms they have a limited shelf life . as such , we attempt to manage the amount of production we request of our manufacturers and the amount of inventory we maintain . we expect our costs of goods sold to increase as we are able to expand our distribution and sales efforts for our probiora3 products . research and development expenses research and development consists of expenses incurred in connection with the discovery and development of our product candidates . these expenses consist primarily of employee-related expenses , which include salaries and benefits and attending science conferences ; expenses incurred under agreements with contract research organizations , investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical studies ; the cost of acquiring and manufacturing clinical trial materials ; facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities and equipment , and depreciation of fixed assets ; license fees for and milestone payments related to in-licensed products and technology ; stock-based compensation expense ; and costs associated with non-clinical activities and regulatory approvals . we expense research and development costs as incurred . our research and development expenses can be divided into ( i ) clinical research , and ( ii ) preclinical research and development activities . clinical research costs consist of clinical trials , manufacturing services , regulatory activities and related personnel costs , and other costs such as rent , utilities , depreciation and stock-based compensation .
| results of operations : replace_table_token_5_th for the three months ended december 31 , 2013 and 2012 net revenues . we generated net revenues of $ 434,784 for the three months ended december 31 , 2013 compared to $ 430,582 in the same period in 2012 ; an increase of $ 4,202. the increase was attributable to an increase in grant revenues of $ 33,593 offset by a decrease in probiora3 revenues of $ 29,391. cost of goods sold . cost of goods sold was $ 79,364 for the three months ended december 31 , 2013 compared to $ 403,935 in the same period in 2012 ; a decrease of $ 324,571. the decrease was attributable to approximately $ 208,000 in the scrap expenses related to inventory reserves taken in 2012. cost of goods sold in 2013 includes the production and manufacturing costs of our probiora3 products sold of $ 80,002 , shipping and processing expenses of $ 5,554 , and scrap expense of $ ( 6,192 ) .cost of goods sold in 2012 includes the production and manufacturing costs of our probiora3 products sold of $ 181,334 , shipping and processing expenses of $ 20,553 , and scrap expense of $ 202,048. scrap expenses represent product rework charges , inventory adjustments , inventory reserves of $ ( 6,192 ) and $ 202,048 during 2013 and 2012 , respectively , associated with expected inventory replacement costs , and damaged inventory . research and development . research and development expenses were $ 1,069,343 for the three months ended december 31 , 2013 compared to $ 730,207 in the same period in 2012 ; an increase of $ 339,136 , or 46.4 % .
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properties include seventeen apartment complexes , two commercial real estate properties , and two single-family houses as strategic investments . the properties are located throughout the united states , but are concentrated in texas and southern california . the company also has investments in unimproved real property . all of the company 's operating real estate properties with exception of the two commercial properties were managed by professional third party property management companies . in july 2014 , the company terminated its property and asset management agreements with the professional third party property management company that managed its properties located outside of california . beginning august 2014 , the company began managing its five properties located outside of california in-house , while the properties located in california are still being managed by a third party property management company , with exception to the two commercial buildings which are also managed in-house . the company acquires its investments in real estate and other investments utilizing cash , securities or debt , subject to approval or guidelines of the board of directors . the company also invests in income-producing instruments , equity and debt securities and will consider other investments if such investments offer growth or profit potential . 22 fiscal year ended june 30 , 2014 compared to fiscal year ended june 30 , 2013 the company had a net loss of $ 6,748,000 for the year ended june 30 , 2014 compared to net income of $ 625,000 for the year ended june 30 , 2013. the significant change in the net ( loss ) income is primarily attributable to the costs related to the restructuring and redemption of the limited partners of justice investors and the related refinancing of the mortgage note on the hotel . this is partially offset by the continued improvement of hotel operations prior to the non-recurring expenses and to a lesser extent , improvement in the real estate operations and gains on marketable securities . the company had net loss from hotel operations of $ 10,664,000 for the fiscal year ended june 30 , 2014 , compared to net income of $ 2,864,000 for the fiscal year ended june 30 , 2013. the change in the net ( loss ) income is primarily attributable the costs related to the restructuring and the redemption of the limited partners of justice and the related refinancing of the mortgage note on the hotel . this is partially offset by the increase revenues at the hotel resulting from higher average room rates partially offset by the related increase in operating expenses . the following table sets forth a more detailed presentation of hotel operations for the years ended june 30 , 2014 and 2013. replace_table_token_4_th for the year ended june 30 , 2014 , the hotel generated operating income of $ 10,158,000 before non-recurring charges and interest and depreciation and amortization on total operating revenues of $ 50,963,000 compared to operating income of $ 7,930,000 before non-recurring charges and interest and depreciation and amortization on total operating revenues of $ 46,565,000 for the year ended june 30 , 2013. room revenues increased by $ 5,124,000 for the year ended june 30 , 2014 compared to the year ended june 30 , 2013 primarily as the result of higher room rates from the improving economy and increased tourism . food and beverage revenues decreased by $ 755,000 due to the closing of certain outlets that were not profitable and garage revenues increased by $ 107,000 for the same period due to the increase in transient parking . major factors for the increase in operating expenses were an increase in contractual union wages and benefits in all operating departments and higher commissions paid for certain group and city-wide convention business in the current period . franchise and management fees , which are based on a percentage of revenues , also increased as well as costs for certain promotions for hilton honors members during the current period . however , management fees which are based on a percentage of revenues , also decreased as the result of the new revised agreement . justice paid a flat rate fee beginning in january of 2014 . 23 the following table sets forth the average daily room rate , average occupancy percentage and room revenue per available room ( “ revpar ” ) of the hotel for the year ended june 30 , 2014 and 2013. replace_table_token_5_th room revenues remained strong as the san francisco market continued to have good demand for higher rated business . the hotel 's average daily rate increased by $ 24 for the year ended june 30 , 2014 compared to the year ended june 30 , 2013 , while occupancy percentages increased to 92 % from 90 % . as a result , the hotel was able to achieve a revpar number that was $ 25 higher than the comparative prior year period . the partnership incurred approximately $ 6,681,000 in restructuring costs relating to the offer to redeem and related financing transactions , including a one-time management fee of $ 1,550,000 , approximately $ 431,000 in legal , accounting and other professional expenses , and payment of a documentary transfer tax of approximately $ 4.7 million to the city and county of san francisco ( “ ccsf ” ) . ccsf required payment of the documentary transfer tax as a condition to record the transfer of the hotel to operating and other documents related to the loan agreements . while the partnership believes the amount of documentary transfer tax that was assessed by ccsf was incorrect , the tax was paid , under protest , to allow for the consummation of the redemption transaction , the loan agreements and the recording of all related documents . the partnership has challenged ccsf 's imposition of the tax and filed a refund claim with the ccsf . no prediction can be made as to whether ccsf 's calculation of the tax will be upheld , or whether any portion of the tax will be refunded . story_separator_special_tag however , the amount of gain or loss on marketable securities and other investments for any given period may have no predictive value and variations in amount from period to period may have no analytical value . for a more detailed description of the composition of the company 's marketable securities please see the marketable securities section below . during the year ended june 30 , 2014 , the company had an unrealized gain of $ 181,000 related to other investments compared to an unrealized loss of $ 216,000 for the year ended june 30 , 2013. the gain is due to the increase in the fair value of stock warrants . the company and its subsidiaries , portsmouth and santa fe , compute and file income tax returns and prepare discrete income tax provisions for financial reporting . the income tax benefit ( expense ) during the year ended june 30 , 2014 and 2013 represents primarily the income tax effect on the portsmouth 's pretax ( loss ) income which includes its share in net income ( loss ) of the hotel . the company 's tax benefit as a percentage of the portsmouth 's income ( loss ) before income taxes has increased in fiscal 2014 due to the redemption and a larger ownership in justice . marketable securities and other investments as of june 30 , 2014 and 2013 , the company had investments in marketable equity securities of $ 11,420,000 and $ 12,624,000 , respectively . the following table shows the composition of the company 's marketable securities portfolio by selected industry groups as : 25 replace_table_token_6_th replace_table_token_7_th the company 's investment portfolio is diversified with 35 different equity positions . the company holds four equity securities that comprise of more than 10 % of the equity value of the portfolio . the largest security represents 44.2 % of the portfolio and consists of the common stock of comstock mining , inc. ( “ comstock ” - nyse mkt : lode ) which is included in the basic materials industry group . the amount of the company 's investment in any particular issuer may increase or decrease , and additions or deletions to its securities portfolio may occur , at any time . while it is the internal policy of the company to limit its initial investment in any single equity to less than 10 % of its total portfolio value , that investment could eventually exceed 10 % as a result of equity appreciation or reduction of other positions . a significant percentage of the portfolio consists of common stock in comstock that was obtained through dividend payments by comstock on its 7.5 % series a-1 convertible preferred stock . marketable securities are stated at fair value as determined by the most recently traded price of each security at the balance sheet date . the company also holds a $ 13,231,000 investment in comstock series a-1 convertible preferred stock which is carried at cost and included in other investments , net . the following table shows the net gain or loss on the company 's marketable securities and the associated margin interest and trading expenses for the respective years . replace_table_token_8_th 26 financial condition and liquidity the company 's cash flows are primarily generated from its hotel operations , and general partner management fees and limited partnership distributions from justice investors , its real estate operations and from the investment of its cash in marketable securities and other investments . on december 18 , 2013 , the partnership completed an offer to redeem any and all limited partnership interests not held by portsmouth and the loan agreements , as defined below . in addition , the partnership approved amendments to the amended and restated agreement of limited partnership , which amendments became effective upon the completion of the offer to redeem and the consummation of the loan agreements . such amendments are described below . as a result , portsmouth , which prior to the offer to redeem owned 50 % of the then outstanding limited partnership interests now controls approximately 93 % of the voting interest in justice and is now its sole general partner . pursuant to the offer to redeem , the partnership has accepted tenders , for cash , from evon , a general partner and seventy-three of the limited partners representing approximately 29.173 % of partnership interests outstanding prior to the offer to redeem for $ 1,385,000 for each 1 % tendered . on december 19 , 2013 , justice distributed the amounts due each of these former partners pursuant to the terms of the tender offer . in addition , the partnership has accepted the election of holders of approximately 17.146 % of the limited partnership interests outstanding prior to the offer to redeem to participate in an alternate redemption structure . under that alternative redemption structure , the partnership paid to holdings $ 1,385,000 for each 1 % tendered . those partners who elected the alternative redemption structure may within 12 months of december 18 , 2013 , designate property for holdings to purchase and then require holdings to transfer that property to the partner in redemption of that partner 's interest in the partnership . the governing agreement also provides for other possible methods of redeeming the interests of the partners who elected the alternate redemption structure . as of june 30 , 2014 , the current and deferred payments related to the alternative redemption structure , which are held by justice 's wholly owned subsidiary , holdings , are classified as restricted cash and , together with the expenses discussed below , total $ 16,163,000 and are classified on the balance sheet as redemption payable .
| results of operations as of june 30 , 2014 , the company owned approximately 80.9 % of the common shares of its subsidiary , santa fe and santa fe owned approximately 68.8 % of the common shares of portsmouth square , inc. intergroup also directly owns approximately 12.9 % of the common shares of portsmouth . the company 's principal sources of revenue continue to be derived from the general and limited partnership interests of its subsidiary , portsmouth , in the justice investors limited partnership ( “ justice ” or the “ partnership ” ) , rental income from its investments in multi-family real estate properties and income received from investment of its cash and securities assets . justice owns a 543 room hotel property located at 750 kearny street , san francisco , california 94108 , known as the “ hilton san francisco financial district ” ( the “ hotel ” ) and related facilities , including a five-level underground parking garage . the financial statements of justice have been consolidated with those of the company . the hotel is operated by the partnership as a full service hilton brand hotel pursuant to a franchise license agreement with hilton hotels corporation . the term of the agreement is for a period of 15 years commencing on january 12 , 2006 , with an option to extend the license term for another five years , subject to certain conditions . justice also has a management agreement with prism hospitality l.p. ( “ prism ” ) to perform the day-to-day management functions of the hotel . the parking garage that is part of the hotel property is managed by ace parking pursuant to a contract with the partnership . portsmouth also receives management fees as a general partner of justice for its services in overseeing and managing the partnership 's assets . those fees are eliminated in consolidation . in december 2013 , the partnership determined to restructure its ownership to facilitate a refinancing of the hotel and redeem the interests of certain partners , including evon .
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our largest business and reportable segment , is qvc , inc. ( “ qvc ” ) . qvc markets and sells a wide variety of consumer products in the united states and several foreign countries , primarily by means of its televised shopping programs and via the internet through its domestic and international websites and mobile applications . on october 1 , 2015 , we acquired zulily , inc. ( “ zulily ” ) ( now known as zulily , llc ) , an online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched every day . see note 5 of the accompanying consolidated financial statements for further details on the acquisition of zulily . our “ corporate and other ” category includes entire or majority interests in consolidated subsidiaries , which operate on-line commerce businesses in a broad range of retail categories , ownership interests in unconsolidated businesses and corporate expenses . these consolidated subsidiaries include bodybuilding.com , llc ( `` bodybuilding '' ) , commercehub , evite , inc. ( “ evite ” ) , provide commerce , inc . ( “ provide ” ) ( through december 31 , 2014 , see note 9 of the accompanying consolidated financial statements ) , and backcountry.com , inc. ( `` backcountry '' ) ( through june 30 , 2015 , see note 6 of the accompanying consolidated financial statements ) , ( collectively , the “ digital commerce ” businesses ) . backcountry operates websites offering sports gear and clothing for outdoor and active individuals in a variety of categories . bodybuilding manages websites related to sports nutrition , body building and fitness . comm ercehub provides a cloud-based platform for online retailers and their suppliers ( manufacturers , and distributors ) to sell products to consumers without physically owning inventory , or managing the fulfillment of those products . evite is an online invitation and social event planning service on the web . provide operates an e-commerce marketplace of websites for perishable goods , including flowers , fruits and desserts , as well as upscale personalized gifts . we also hold ownership interests in expedia , inc. , ftd companies , inc. ( “ ftd ” ) , hsn , inc. , interval leisure group , inc. and lendingtree , which we account for as equity method investments ; and we continue to maintain investments and related financial instruments in public companies such as time warner inc. and time warner cable inc. , which are accounted for at their respecti ve fair market values . on august 9 , 2012 , liberty completed the approved recapitalization of its common stock through the creation of the liberty interactive common stock and liberty ventures common stock as tracking stocks . in the recapitalization , each holder of liberty interactive corporation common stock remained a holder of the same amount and series of liberty interactive common stock and received 0.05 of a share of the corresponding series of liberty ventures common stock , by means of a dividend , with cash issued in lieu of fractional shares of liberty ventures common stock . on october 3 , 2014 , liberty reattributed from the qvc group to the ventures group its digital commerce businesses which were valued at $ 1.5 billion , and approximately $ 1 billion in cash . in connection with the reattribution , each holder of liberty interactive common stock received 0.14217 of a share of the corresponding series of liberty ventures common stock for each share of liberty interactive common stock held as of the record date , with cash paid in lieu of fractional shares . the distribution date for the dividend was on october 20 , 2014 , and the liberty interactive common stock began trading ex-dividend on october 15 , 2014 which resulted in an aggregate of 67.7 million shares of series a and series b liberty ventures common stock being issued . the reattribution of the digital commerce companies is presented on a prospective basis from the date of the reattribution in liberty 's consolidated financial statements and attributed financial information , with october 1 , 2014 used as a proxy for the date of the reattribution . other than the issuance of liberty ventures shares in the fourth quarter of 2014 , the reattribution had no consolidated impact on liberty . effective june 4 , 2015 , the name of the “ liberty interactive common stock ” was changed to the “ qvc group common stock. ” the term `` ventures group '' does not represent a separate legal entity , rather it represents those businesses , assets and liabilities that have been attributed to that group . following the reattribution , the ventures group is comprised primarily of our interests in bodybu ilding , commercehub , evite , provide ( through december 31 , 2014 ) , backcountry ( through june ii- 6 30 , 2015 ) , expedia , inc. , ftd , interval leisure group , inc. , lendingtree , investments in time warner inc. and time warner cable inc. , as well as cash in the amount of approximately $ 2,023 million ( at december 31 , 2015 ) , including subsidiary cash . the ventures group also has attributed to it certain liabilities related to our exchangeable debentures and certain deferred tax liabilities . the ventures group is primarily focused on the maximization of the value of these investments and investing in new business opportunities . the term `` qvc group '' does not represent a separate legal entity , rather it represents those businesses , assets and liabilities that have been attributed to that group . the qvc group is primarily focused on our video operating businesses . story_separator_special_tag such weak economic conditions may also inhibit qvc 's expansion into new european and other markets . qvc is currently unable to predict the extent of any of these potential adverse effects . zulily . zulily 's objective is to be the leading online retail destination for moms . zulily ' s goal is to be part of its customer s ' daily routine , allowing them to visit zulily sites and discover a selection of fresh , new and affordable merchandise curated for them every morning . zulily intends to employ the following strategies to achieve these goals and objectives ( i ) acquire new customers ; ( ii ) increase customer loyalty and repeat purchasing ; ( iii ) add new vendors and strengthen existing vendor relationships ; and ( iv ) invest in mobile platform . in addition , zulily expects to invest in and develop international markets . zulily has limited contractual assurances of continued supply , pricing or access to new products , and vendors could change the terms upon which they sell to zulily or discontinue selling to zulily for future sales at any time . as zulily grows , continuing to identify a sufficient number of new emerging brands and smaller boutique vendors may become more and more of a challenge . if zulily is not able to identify and effectiv ely promote these new brands , it may lose customers to competitors . even if zulily identifies new vendors , it may not be able to purchase desired merchandise in sufficient quan tities on acceptable terms in the future , and products from alternative sources , if any , may be of a lesser quality or more expensive than those from existing vendors . in addition , larger national brands may offer products that are less uniq ue , and it may be easier for zulily 's competitors to offer such products at prices or upon terms that may be compelling to consumers . an inability to purchase suitable merchandise on acceptable terms or to source new vendors could ha ve an adverse effect on zulily 's business . to support its large and diverse base of vendors and its flash sales model that requires constantly changing products , zuli ly must incur costs related to its merchandising team , photography studios and creative personnel . as zulily grows , it may not be able to continue to expand its product offerings in a cost-effective manner . in addition , the variety in size and sophistication of zulily 's vendors presents different challenges to its infrastructure and operations . zulily 's emerging brands and smaller boutique vendors may be less experienced in manufacturing and shipping , which in the past has led to inconsistencies in quality , delays in the delivery of merchandise or additional fulfillment cost . zulily 's larger national brands may impose additional requirements or offer less favorable terms than smaller vendors related to margins and inventory ownership and risk and may also be unable to ship products timely . if zulily is unable to maintain and effectively manage its relationships with emerging brands and smaller boutique vendors or larger national brands , zulily 's business could be adversely affected . ii- 8 results of operations—consolidated general . we provide in the tables below information regarding our consolidated operating results and other income and expense , as well as information regarding the contribution to those items from our principal reportable segments . the `` corporate and other '' category consists of those assets or businesses which we do not disclose separately , including our digital commerce businesses , which are included in the qvc group results through the date of reattribution and in the ventures group thereafter . for a more detailed discussion and analysis of the financial results of the principal reporting segment , see `` results of operations - businesses '' below . story_separator_special_tag 0pt ; text-indent:18pt ; text-align : justify ; text-justify : inter-ideograph ; font-family : times new roman , times , serif ; font-size : 10pt ; '' > stock-based compensation . stock-based compensation includes compensation related to ( 1 ) options and stock appreciation rights ( `` sars '' ) for shares of our common stock that are granted to certain of our officers and employees , ( 2 ) phantom stock appreciation rights ( `` psars '' ) granted to officers and employees of certain of our subsidiaries pursuant to private equity plans and ( 3 ) amortization of restricted stock grants . we recorded $ 127 million , $ 108 million and $ 118 million of stock compensation expense for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the in crease of $ 19 million in stock-based compensation during 2015 was primarily attributable to an increase in stock-based compensation at a few subsidiaries due to the growth in the fair value of those entities and due to options granted to zulily employees upon acquisition . the decrease of $ 10 m illion in stock-based compensation during 2014 was primarily attributable to slightly fewer options being granted in recent years which resulted in less stock-based compensation expense being recognized . as of december 31 , 2015 , the total unrecognized compensation cost related to unvested liberty equity awards was approximately $ 113 million . such amount will be recognized in our consolidated statements of operations over a weighted average period of approximately 2.4 years . ii- 10 operating income . our consolidated operating income decreased $ 72 million and increased $ 52 million for the years ended december 31 , 2015 and 2014 , respectively , as compared to the corresponding prior year periods . qvc 's operating income was relatively flat for the year ended december 31 , 2015 and increased $ 34 million for the year ended december 31 , 2014 , as compared to the corresponding prior year periods . zulily 's operating losses for the period october 1 , 2015 ( date of acquisition ) through december 31 , 2015 were $ 54 million .
| operating results replace_table_token_5_th revenue . our consolidated revenue decreased 4.9 % and increased 2.7 % for the years ended december 31 , 2015 and 2014 , respectively , as compared to the corresponding prior year periods . qvc 's revenue decreased $ 58 million and increased $ 178 million for the year s ended december 31 , 2015 and 2014 , respectively , as compared to the corresponding prior year periods . zulily 's revenue for the period october 1 , 2015 ( date of acquisition ) th rough december 31 , 2015 was $ 426 million . ignoring the reattribution , total corporate and other revenue decreased $ 878 million for the year ended december 31 , 2015 , as compared to the corresponding prior year period , primarily due to the sale of provide in december 2014 ( $ 666 million ) and sale of backcountry in june 2015 ( $ 244 million ) , partially offset by an increase of $ 23 million at ii- 9 commercehub and increase of $ 8 million at bodybuilding . commercehub revenue growth was driven by an acquisition during the first quarter of 2015 and growth in active customers ( vendors and suppliers ) , which increased the number of aggregate transactions processed through the commercehub platform . the increase in bodybuilding revenue for the year ended december 31 , 2015 was primarily due to increased order volume , driven by increased unique website visitors , on slightly decreased average order values . ignoring the reattribution , total corporate and other revenue increased $ 102 million for the year ended december 31 , 2014 , primarily due to increases of $ 37 million at backcountry , $ 34 million at bodybuilding and $ 15 million at commercehub . backcountry revenue increased as a result of increased order volume and an in crease in average order value . the increase in bodybuilding revenue was primarily due to increased order volume on flat average order values .
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the company recognizes all derivative instruments as either assets story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks and uncertainties such as the number of restaurants we intend to open , possible stock and warrant repurchases and estimates of our effective tax rates that could cause actual results to differ materially from del taco management 's expectations . factors that could cause such differences are discussed in “ cautionary note regarding forward-looking statements ” and item 1a . risk factors included in this annual report on form 10-k. we assume no obligation to update any of these forward-looking statements as a result of new information , future events or any other reason . fiscal year we operate on a 52- or 53-week fiscal year ending on the tuesday closest to december 31 for financial reporting purposes . fiscal year 2018 is the 52-week period ended january 1 , 2019 ( `` fiscal 2018 '' ) . fiscal year 2017 is the 52-week period ended january 2 , 2018 ( `` fiscal 2017 '' ) . fiscal year 2016 is the 53-week period ended january 3 , 2017 ( `` fiscal 2016 '' ) . overview we are a nationwide operator and franchisor of restaurants featuring fresh and fast cuisine , including both mexican inspired and american classic dishes . as of january 1 , 2019 , we have 580 del taco restaurants , a majority of these in the pacific southwest . in each of our restaurants , our food is made to order in working kitchens . we serve our customers fresh and high-quality food typical of fast casual restaurants but with the speed , convenience and value associated with traditional quick service restaurants ( “ qsrs ” ) . with attributes of both a fast casual restaurant and a qsr — a combination we call qsr+ — we occupy a place in the restaurant market distinct from our competitors . with a menu designed to appeal to a wide variety of budgets and tastes and recently updated interior and exterior designs across most of our entire system , we believe that we are poised for growth , operating within the fastest growing segment of the restaurant industry , the limited service restaurant ( “ lsr ” ) segment . with an average system check of $ 7.72 during fiscal 2018 , we offer a compelling value proposition relative to both qsr and fast casual peers . highlights and trends same store sales same store sales growth reflects the change in year-over-year sales for the same store base . we include a restaurant in the same store base in the accounting period following its 18 th full month of operations and exclude restaurant closures . same store sales growth for the 53rd week in the fifty-three weeks ended january 3 , 2017 was calculated by comparing it to the “ like week ” in the prior year . the following table shows the same store sales growth for the fifty-two weeks ended january 1 , 2019 , the fifty-two weeks ended january 2 , 2018 and the fifty-three weeks ended january 3 , 2017 , respectively : replace_table_token_9_th the increase in company-operated same store sales in the fifty-two weeks ended january 1 , 2019 was driven by an increase in average check size of 3.6 % offset by a decrease in traffic of 2.1 % compared to the fifty-two weeks ended january 2 , 2018 . the increase in company-operated same store sales in the fifty-two weeks ended january 2 , 2018 was driven by an increase in average check size of 3.8 % and an increase in traffic of 0.2 % compared to the fifty-three weeks ended january 3 , 2017 . the increase in company-operated same store sales in the fifty-three weeks ended january 3 , 2017 was driven by an increase in average check size of 4.5 % and an increase in traffic of 0.2 % compared to the fifty-two weeks ended december 29 , 2015 . 42 restaurant development del taco restaurant counts at the end of the fifty-two weeks ended january 1 , 2019 , the fifty-two weeks ended january 2 , 2018 and the fifty-three weeks ended january 3 , 2017 are as follows : replace_table_token_10_th since 2012 , we have focused on repositioning our brand , increasing brand awareness , re-imaging our restaurants , strengthening operational capabilities and refinancing indebtedness to build a foundation for future organic and new unit growth . new restaurant development is expected to contribute to our growth strategy . we plan to open at least 25 system-wide restaurants in fiscal 2019. from time to time , we and our franchisees may close restaurants . restaurant re-imaging we and our franchisees commenced the ambience shake up ( asu ) re-imaging program in 2012 and , as of the date of this form 10-k , substantially all of our system restaurants feature our current image through a re-image or new prototype design , including all 322 restaurants that are company-operated . the asu re-imaging program involved a use of cash and impacted net property and depreciation line items on the consolidated balance sheets and statements of comprehensive income ( loss ) , among others . the cost of the asu restaurant re-images varied depending on the scope of work required , but on average the company-operated investment was $ 45,000 per restaurant . we believe the asu re-imaging program was an important element of our strategy that has led to higher system restaurant sales and a strengthened brand . key performance indicators in assessing the performance of our business , management utilizes a variety of financial and performance measures . story_separator_special_tag ebitda and adjusted ebitda as presented in this annual report are supplemental measures of performance that are neither required by , nor presented in accordance with u.s. gaap . ebitda and adjusted ebitda are not measurements of financial performance under u.s. gaap and should not be considered as alternatives to net income ( loss ) , income from operations or any other performance measures derived in accordance with u.s. gaap or as alternatives to cash flow from operating activities as a measure of liquidity . in addition , in evaluating ebitda and adjusted ebitda , you should be aware that in the future we may incur expenses or charges such as those added back to calculate ebitda and adjusted ebitda . our presentation of ebitda and adjusted ebitda should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items . ebitda and adjusted ebitda have limitations as analytical tools , and you should not consider them in isolation , or as substitutes for analysis of results as reported under u.s. gaap . some of these limitations include but are not limited to : ( i ) they do not reflect cash expenditures , or future requirements for capital expenditures or contractual commitments ; ( ii ) they do not reflect changes in , or cash requirements for , working capital needs ; ( iii ) they do not reflect the significant interest expense , or the cash requirements necessary to service interest or principal payments , on debt ; ( iv ) although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will often have to be replaced in the future , and ebitda and adjusted ebitda do not reflect any cash requirements for such replacements ; ( v ) they do not adjust for all non-cash income or expense items that are reflected in the statements of cash flows ; ( vi ) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of ongoing operations ; and ( vii ) other companies in the industry may calculate these measures differently than we do , limiting their usefulness as comparative measures . we compensate for these limitations by providing specific information regarding the u.s. gaap amounts excluded from such non-gaap financial measures . we further compensate for the limitations in the use of non-gaap financial measures by presenting comparable u.s. gaap measures more prominently . we believe ebitda and adjusted ebitda facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies . these potential differences may be caused by variations in capital structures ( affecting interest expense ) , tax positions ( such as the impact on periods or changes in effective tax rates or net operating losses ) and the age and book depreciation of facilities and equipment ( affecting relative depreciation expense ) . we also present ebitda and adjusted ebitda because ( i ) we believe these measures are frequently used by securities analysts , investors and other interested parties to evaluate companies in their industry , ( ii ) we believe investors will find these measures useful in assessing our ability to service or incur indebtedness , and ( iii ) we use ebitda and adjusted ebitda internally as benchmarks to compare performance to that of competitors . see the heading entitled `` management 's use of non-gaap financial measures '' for the reconciliation of ebitda and adjusted ebitda to net income ( loss ) . key financial definitions company restaurant sales company restaurant sales represents sale of food and beverages in company-operated restaurants , net of promotional allowances , employee meals and other discounts . company restaurant sales in any period is directly influenced by the number of operating weeks in such period , the number of open restaurants , same store sales performance and per restaurant sales . franchise revenue franchise revenue consists of franchise royalty income from the franchisee and , to a lesser extent , renewal fees and franchise fees from franchise owners for new franchise restaurant openings . franchise fees are collected upon signing a franchise agreement and deferred and recognized as revenue over the term of the franchise agreement and renewal fees are deferred and recognized over the term of the renewal agreement . to a lesser extent , franchise revenue also includes pass-through fees for services such as software maintenance and technology subscriptions since we are considered the principal related to the 45 purchase and sale of the services to the franchisee and have no remaining performance obligations . the related expenses are recognized in general and administrative expenses . franchise advertising contributions franchise advertising contributions consist of a percentage of franchise restaurant 's net sales , typically 4 % , paid to the company for advertising and promotional services that the company provides . franchise sublease and other income franchise sublease income consists of rental income received from franchisees related to properties where we have subleased a leasehold interest to the franchisee but remain primarily liable to the landlord , as well as other franchise income related to information technology hardware such as point of sale equipment , tablets , kitchen display systems , servers , scanners and printers that we occasionally purchase from third party vendors and then sell to franchisees . since we are considered the principal related to the purchase and sale of the hardware to the franchisee and have no remaining performance obligations , the franchisee reimbursement is recognized as franchise sublease and other income upon transfer of the hardware . the related expenses are recognized in occupancy and other - franchise subleases and other . food and paper costs food and paper costs include the direct costs associated with food , beverage and packaging of menu items .
| results of operations comparison of results of operations for the fifty-two weeks ended january 1 , 2019 and fifty-two weeks ended january 2 , 2018 the following table presents operating results for the fifty-two weeks ended january 1 , 2019 and the fifty-two weeks ended january 2 , 2018 in absolute terms and expressed as a percentage of total revenue ( or company restaurant sales ) , as compared below : replace_table_token_11_th ( 1 ) as a percentage of company restaurant sales . * immaterial/not meaningful 48 company restaurant sales company restaurant sales increased $ 19.0 million , or 4.2 % , for the fifty-two weeks ended january 1 , 2019 , primarily due to an increase in company-operated same store sales of 1.5 % and the net impact of restaurant openings , transfers and closures since the beginning of the first quarter of 2017. the growth in company-operated same store sales was primarily the result of an increase in average check size of 3.6 % offset by a decrease in traffic of 2.1 % compared to the prior period . franchise revenue franchise revenue increased $ 1.1 million , or 6.7 % , for the fifty-two weeks ended january 1 , 2019 , primarily due to an increase in franchise-operated same store sales of 3.8 % . franchise advertising contributions franchise advertising contributions were $ 13.3 million for the fifty-two weeks ended january 1 , 2019 . there were no franchise advertising contributions for the fifty-two weeks ended january 2 , 2018 since we adopted new revenue recognition standards at the start of fiscal 2018. see note 2 of the notes to consolidated financial statements included elsewhere in this annual report on form 10-k for more information .
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the total tax benefit recognized in the income statement from stock-based compensation arrangements for the years ended december 31 , 2018 , 2017 and 2016 , was $ 441,000 , $ 6,342,000 and $ 1,235,000 , respectively . these amounts include excess tax benefits in each year . unrecognized compensation cost information for our various stock-based compensation types is shown below as of december 31 , 2018 : unrecognized compensation cost weighted average remaining years in amortization period stock options $ 1,725,000 3.3 restricted stock 1,738,000 3.3 restricted stock units 1,150,000 3.5 total $ 4,613,000 we have a policy of utilizing treasury shares to satisfy stock option exercises , stock unit conversions and restricted stock awards . ( 9 ) industry segment and geographic information we operate in one reportable industry segment : developing and manufacturing products primarily for medical applications and have no foreign operating subsidiaries . we have other product lines which include pressure relief valves and inflation systems , which are sold primarily to the aviation and marine industries . due to the similarities in product technologies and manufacturing processes , these products are managed as part of our medical products segment . our revenues from sales to customers outside the united states totaled approximately 37 percent of our net revenues in 2018 , 2017 and 2016. we have no assets located outside the united states . 52 atrion corporation notes to consolidated financial statements – ( continued ) ( 10 ) employee retirement and benefit plans we sponsor a defined contribution 401 ( k ) plan for all employees . each participant may contribute certain amounts of eligible compensation . we make a matching contribution to the plan . our contributions under this plan were $ 752,000 , $ 720,000 and $ 667,000 in 2018 , 2017 and 2016 , respectively . the company adopted a nonqualified deferred compensation plan effective september 1 , 2017 , for certain key management or highly-compensated employees . the plan allows for the deferral of salary and bonus compensation until retirement or other specified payment events occur . employees ' deferred compensation amounts are deemed to be invested in certain investment funds , indexes or vehicles selected by our compensation committee and designated by each participant and their deferral balances are adjusted for earnings based upon the performance of these deemed investments . our deferred compensation obligation under the plan was $ 1,774,000 and $ 426,000 at december 31 , 2018 and 2017 , respectively . these amounts are reflected in “ other liabilities and deferred credits ” in the accompanying consolidated balance sheets . ( 11 story_separator_special_tag overview we develop and manufacture products primarily for medical applications . we market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians , hospitals , clinics and other treatment centers . our medical products primarily serve the fluid delivery , cardiovascular and ophthalmology markets . our other medical and non-medical products include valves and inflation devices used in marine and aviation safety products . in 2018 , approximately 37 percent of our sales were outside the united states . our products are used in a wide variety of applications by numerous customers . we encounter competition in all of our markets and compete primarily on the basis of product quality , price , engineering , customer service and delivery time . our strategy is to provide a broad selection of products in the areas of our expertise . r & d efforts are focused on improving current products and developing highly-engineered products that meet customer needs and serve niche markets with meaningful sales potential . proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable . we also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes . we have been successful in consistently generating cash from operations and have used that cash to reduce or eliminate indebtedness , to fund capital expenditures , to make investments , to repurchase stock and to pay dividends . 21 our strategic objective is to further enhance our position in our served markets by : ● focusing on customer needs ; ● expanding existing product lines and developing new products ; ● maintaining a culture of controlling cost ; and ● preserving and fostering a collaborative , entrepreneurial management structure . for the year ended december 31 , 2018 , we reported revenues of $ 152.5 million , operating income of $ 41.7 million and net income of $ 34.3 million . story_separator_special_tag rates for 2018 , 2017 and 2016 were 18.5 percent , 13.6 percent and 29.8 percent , respectively . the tax act reduced the corporate federal income tax rate in the united states from 35 % to 21 % effective for us on january 1 , 2018. this rate reduction reduced our net deferred tax liability , including adjustments to our net state deferred tax liabilities , by $ 4.1 million as of december 31 , 2017. based upon this tax law enactment , we recorded a corresponding benefit in our income tax provision of $ 4.1 million for the fourth quarter and the full year of 2017. also , in the fourth quarter of 2017 we recorded a valuation allowance of $ 609,000 to reduce our deferred tax assets which partially offset the benefit recorded in our income tax provision from the tax law change in 2017. we recorded excess tax benefits related to employee stock compensation of $ 95,000 , $ 5.8 million and $ 687,000 for the years ended december 31 2018 , 2017 and 2016 , respectively . story_separator_special_tag new accounting pronouncements in may 2014 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) 2014-09 , revenue from contracts with customers , also known as asc 606. this new standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers . asc 606 replaced most existing revenue recognition guidance in united states generally accepted accounting principles when it became effective for fiscal years beginning after december 15 , 2017. we adopted the new standard on january 1 , 2018 , using the full retrospective method . because accounting for revenue from contracts with customers did not materially change for us under the new standard , prior period consolidated financial statements did not require adjustment . on february 25 , 2016 the fasb issued asu 2016-02 , leases ( asc 842 ) . the main objective of this standard is to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements . this leasing standard requires lessees to recognize a right of use asset and lease liability on the balance sheet . lessor accounting is updated to align with certain changes in the lessee model and the new revenue recognition standard ( asc 606 ) . we elected to early adopt this standard as of january 1 , 2018 , using the modified retrospective approach as required . the impact of this change on our consolidated financial statements was not material . in july 2018 , we adopted the practical expedient in asu 2018-11 - leases : targeted improvements which allows lessors to combine lease and non-lease components into a single performance obligation . if the non-lease components are the predominant component of the combined contract , asu 2018-11 also allows for these agreements to be accounted for under asc 606 rather than as leases under asc 842. the impact of this change on our consolidated financial statements was not material . in january 2016 , the fasb issued asu 2016-01 , financial instruments - overall ( subtopic 825-10 ) : recognition and measurement of financial assets and financial liabilities . the main objective of this update is to enhance the reporting model for financial instruments in order to provide users of financial statements with more decision-useful information . changes to the previous guidance primarily affect the accounting for equity investments , financial liabilities under the fair value option , and the presentation and disclosure requirements for financial instruments . the primary impact of this change for us relates to our available-for-sale equity investments and resulted in unrecognized gains and losses from our investments being reflected in our consolidated statement of income beginning in 2018. we adopted asu 2016-01 as of january 1 , 2018 , applying the update by means of a cumulative-effect adjustment to the balance sheet by reclassifying the balance of our accumulated other comprehensive loss in the shareholders ' equity section of the balance sheet to retained earnings . the balance reclassified of $ 1,215,000 was a result of prior-period unrealized losses from our equity investments . in 2018 we recorded an additional loss on our equity investments of $ 1,399,000 as a result of a decrease in the market value of these investments during the year . this loss is reflected in other investment income ( loss ) in our consolidated statement of income . this change in accounting is expected to create greater volatility in our investment income each quarter in the future . 25 in march 2017 , the fasb issued asu 2017-08 , receivables – non-refundable fees and other costs ( subtopic 310-20 ) . the main objective of this update is to shorten the period of amortization of the premium on certain callable debt securities to the earliest call date . however , the update does not require an accounting change for securities held at a discount ; the discount continues to be amortized to maturity . the update is effective for annual periods beginning after december 15 , 2018 , including interim periods within those annual periods . we elected to early adopt this update as of january 1 , 2018. none of our investments in 2017 and 2016 had any premium paid , so no adjustments were needed for prior-period activity . the impact of this change on our consolidated financial statements was not material . from time to time , new accounting pronouncements applicable to us are issued by the fasb , or other standards setting bodies , which we will adopt as of the specified effective date . unless otherwise discussed , we believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption . critical accounting policies the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . in the preparation of these financial statements , we make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . we believe the following discussion addresses our most critical accounting policies and estimates , which are those that are most important to the portrayal of our financial condition and results and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . actual results could differ significantly from those estimates under different assumptions and conditions . from time to time , we accrue legal costs associated with certain litigation .
| results of operations our net income was $ 34.3 million , or $ 18.49 per basic and $ 18.44 per diluted share , in 2018 compared to $ 36.6 million , or $ 19.82 per basic and $ 19.71 per diluted share , in 2017 and net income of $ 27.6 million , or $ 15.12 per basic and $ 14.85 per diluted share , in 2016. revenues were $ 152.5 million in 2018 compared with $ 146.6 million in 2017 and $ 143.5 million in 2016. the four percent revenue increase in 2018 over 2017 was generally attributable to higher sales volumes . our 2016 revenues were negatively impacted by the strong u. s. dollar in our international markets and lower sales prices in certain markets . annual revenues by product lines were as follows ( in thousands ) : replace_table_token_2_th although we have experienced decreasing revenues from sales of ophthalmic products over the last three years , we expect revenues from those products to remain at approximately the 2018 level for at least 2019. our cost of goods sold was $ 80.7 million in 2018 , $ 75.8 million in 2017 and $ 75.9 million in 2016. increased sales volumes and an unfavorable product sales mix partially offset by improved manufacturing efficiencies and the impact of continued cost improvement projects were the primary contributors to the increase in cost of goods sold in 2018 compared to 2017. a favorable product sales mix , improved manufacturing efficiencies and the impact of continued cost improvement projects partially offset by higher sales volumes were the primary contributors to the decrease in cost of goods sold in 2017 compared to 2016. gross profit in 2018 was $ 71.8 million compared with $ 70.8 million in 2017 and $ 67.6 million in 2016. our gross profit was 47 percent of revenues in 2018 , 48 percent of revenues in 2017 and 47 percent of revenues in 2016. the decrease
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accounting for product contracts that are satisfied over time includes use of several estimates such as variable consideration related to bonuses and penalties and total estimated cost for completing the contract . the estimated amount of variable consideration will be included in the story_separator_special_tag you should read the following discussion and analysis of our results of operations , financial condition and liquidity in conjunction with our consolidated financial statements and the related notes . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report including information with respect to our plans and strategies for our business , statements regarding the industry outlook , our expectations regarding the future performance of our business , and the other non-historical statements contained herein are forward-looking statements . see “ cautionary note regarding forward-looking statements. ” you should also review item 1a — “ risk factors ” for a discussion of important factors that could cause actual results to differ materially from the results described herein or implied by such forward-looking statements . general overview of fiscal year 2019 revenues for the year ended december 31 , 2019 , our total revenues increased by 3.7 % ( from $ 719.3 million to $ 746.0 million ) over the previous year . for the year ended december 31 , 2019 , electricity segment revenues were $ 540.3 million , compared to $ 509.9 million for the year ended december 31 , 2018 , an increase of 6.0 % . product segment revenues for the year ended december 31 , 2019 were $ 191.0 million , compared to $ 201.7 million for the year ended december 31 , 2018 , a decrease of 5.3 % . energy storage and management services segment revenues for the year ended december 31 , 2019 were $ 14.7 million , compared to $ 7.6 million for the year ended december 31 , 2018. during the years ended december 31 , 2019 and 2018 , our consolidated power plants generated 6,238,272 mwh and 5,857,963 mwh , respectively , an increase of 6.5 % . 76 for the year ended december 31 , 2019 , our electricity segment generated 72.4 % of our total revenues ( 70.9 % in 2018 ) , while our product segment generated 25.6 % of our total revenues ( 28.0 % in 2018 ) , and our energy storage and management services segment generated 2.0 % of our total revenues ( 1.1 % in 2018 ) . for the year ended december 31 , 2019 , approximately 97.6 % of our electricity segment revenues were from ppas with fixed energy rates which are not affected by fluctuations in energy commodity prices . we have variable price ppas in california and hawaii , which provide for payments based on the local utilities ' avoided cost , which is the incremental cost that the power purchaser avoids by not having to generate such electrical energy itself or purchase it from others , as follows : ● the energy rates under the ppas in california for each heber 2 power plant in the heber complex and the g2 power plant in the mammoth complex , a total of between 30 to 40 mw , change primarily based on fluctuations in natural gas prices . ● the prices paid for electricity pursuant to the 25 mw ppa for the puna complex in hawaii change primarily as a result of variations in the price of oil as well as other commodities . we recently signed a new ppa related to puna with fixed prices ( see `` recent developments '' below ) . to comply with obligations under their respective ppas , certain of our project subsidiaries are structured as special purpose , bankruptcy remote entities and their assets and liabilities are ring-fenced . such assets are not generally available to pay our debt , other than debt at the respective project subsidiary level . however , these project subsidiaries are allowed to pay dividends and make distributions of cash flows generated by their assets to us , subject in some cases to restrictions in debt instruments , as described below . electricity segment revenues are also subject to seasonal variations and are affected by higher-than-average ambient temperatures , as described below under “ seasonality ” . revenues attributable to our product segment are based on the sale of equipment , epc contracts and the provision of various services to our customers . product segment revenues may vary from period to period because of the timing of our receipt of purchase orders and the progress of our equipment manufacturing and execution of the relevant project . revenues attributable to our energy storage and management services segment are derived primarily from bsaas systems , demand response and energy management services and may fluctuate between period to period . pricing of such services and products are dependent on market supply and demand trends , market volatility , the need and price for ancillary services and other factors that may change over time . our management assesses the performance of our operating segments differently . in the case of our electricity segment , when making decisions about potential acquisitions or the development of new projects , management typically focuses on the internal rate of return of the relevant investment , technical and geological matters and other business considerations . management evaluates our operating power plants based on revenues , expenses , and ebitda , and our projects that are under development based on costs attributable to each such project . management evaluates the performance of our product segment based on the timely delivery of our products , performance quality of our products , revenues and costs actually incurred to complete customer orders compared to the costs originally budgeted for such orders . we evaluate energy storage and management services segment performance similar to the electricity segment with respect to projects that we own and operate and similar to the product segment when we provide services to third parties . story_separator_special_tag as president , mr. blachar assists our ceo , isaac angel , with the company 's strategic direction and operational management until he assumes mr. angel 's position in july 1 , 2020. in august 2019 , we announced that one of our wholly owned subsidiaries that indirectly owns the 48mw mcginness hills phase 3 geothermal power plant entered into a partnership agreement with a private investor . pursuant to the transaction agreement , the private investor acquired membership interests in the project for an initial purchase price of approximately $ 59.3 million and for which it will pay additional annual installments that are expected to amount to a total of approximately $ 9 million and can reach up to $ 22 million based on the actual generation . we will continue to consolidate , operate and maintain the power plant and will receive substantially all of the distributable cash flow generated by the power plant , and prior to december 2027 the private investor will receive substantially all of the tax attributes . in july 2019 , we commenced commercial operation of our first-ever geothermal and solar hybrid project , a 7mw ac solar expansion of our tungsten mountain geothermal project in churchill county , nevada . the electricity generated from the tungsten solar power plant will be used to offset the equipment 's energy use at the tungsten geothermal facility , thus increasing the renewable energy delivered by the project under the southern california public power authority ( `` scppa '' ) portfolio contract . scppa and the los angeles department of water and power had the vision to enable this development through their innovative portfolio contract , which sought to maximize the output of their renewable facilities and furthering the transition away from coal power while maintaining a reliable power supply for los angeles . 78 in july 2019 we announced that we signed and closed a set of agreements to acquire 49 % of the ijen geothermal project company , which is holding a ppa and geothermal license to develop the ijen project in east java , indonesia , from a medco power subsidiary . under the terms of the agreements , ormat acquired 49 % of the shares of the ijen geothermal project company and committed to make additional funding for the project exploration and development , subject to specific conditions . a subsidiary of medco power retains 51 % ownership of our company . ormat and medco will develop the project jointly . the ijen project assets , whose final capacity will be determined after exploration , include a geothermal concession and 30-year ppa for up to 110 mw capacity . the project is ready for exploration and development with some slim holes already drilled . in may 2019 , we completed the drawdown of $ 23.5 million under a non-recourse loan agreement with siemens financial services for the financing of plumsted and stryker , two 20 mw battery energy storage projects located in new jersey . the loan bears interest of three months u.s. libor plus 3.5 % margin and its final maturity date is may 30 , 2026. in march 2019 , we entered into a first addendum ( “ first addendum ” ) to the migdal loan agreement with several entities within the migdal group , a leading israeli insurance company and institutional investor in israel . the first addendum provides us with an additional loan by the lenders in an aggregate principal amount of $ 50.0 million that will be repaid in 15 semi-annual payments of $ 2.1 million each , commencing on september 15 , 2021 , with a final payment of $ 18.5 million on march 15 , 2029. the $ 50.0 million loan bears interest at a fixed rate of 4.6 % per annum , payable semi-annually . in march 2019 , we announced the signing of a ppa between one of our subsidiaries and scppa . under the ppa , scppa will purchase 16mw of power generated by the expected 30mw casa diablo-iv ( “ cd4 ” ) geothermal project located in mammoth lakes , california . scppa will resell the output to the city of colton . the cd4 power plant will be the first geothermal power plant built within the california independent system operator ( “ caiso ” ) balancing authority in the last 30 years . the 16mw of energy deliveries under the ppa will begin no later than the end of 2021 with an extension option . the ppa is for a term of 25 years and has a fixed price of $ 68 per mwh . we are in negotiations to sell the balance of 14mw to other offtakers or at the spot market . in january 2019 , we entered into a $ 41.5 million subordinated loan agreement with deutsche investitions-und entwicklungsgesellschaft mbh ( “ deg ” ) and on february 28 , 2019 , we completed a drawdown of the full loan amount , with a fixed interest rate of 6.04 % for the duration of the loan . the loan is being repaid in 19 equal semi-annual principal installments , which commenced on june 21 , 2019 , with a final maturity date of june 21 , 2028. proceeds of the loan were used to refinance upgrades to plant 1 of the olkaria iii complex . opportunities , trends and uncertainties different trends , factors and uncertainties may impact our operations and financial condition , including many that we do not or can not foresee . however , we believe that our results of operations and financial condition for the foreseeable future will be primarily affected by the following trends , factors and uncertainties that are from time to time also subject to market cycles : ● there has been increased demand for energy generated from geothermal and other renewable resources in the united states as costs for electricity generated from renewable resources have become more competitive .
| results of operations our historical operating results in dollars and as a percentage of total revenues are presented below . replace_table_token_14_th 87 results as a percentage of revenues replace_table_token_15_th 88 comparison of the year ended december 31 , 2019 and the year ended december 31 , 2018 total revenues ( dollars in millions ) replace_table_token_16_th electricity segment revenues attributable to our electricity segment for the year ended december 31 , 2019 were $ 540.3 million , compared to $ 509.9 million for the year ended december 31 , 2018 , representing a 6.0 % increase from the prior period . this increase was primarily attributable to : ( i ) the commencement of commercial operation of the third phase of our mcginness hills complex in nevada , effective december 2018 , which generated total complex revenues of $ 96.9 million for the year ended december 31 , 2019 compared to $ 65.1 million for the year ended december 31 , 2018 ; ( ii ) the consolidation of usg which was acquired on april 24 , 2018 , and contributed $ 35.6 million for the year ended december 31 , 2019 , compared to $ 21.4 million for the year ended december 31 , 2018 ; and ( iii ) the commencement of commercial operation of our plant 1 expansion project in the olkaria iii complex in kenya , effective june 2018. the increase was partially offset by ( i ) the shutdown of our puna power plant following the kilauea volcanic eruption on may 3 , 2018 which resulted in a reduction of $ 15.5 million in revenues compared to the year ended december 31 , 2018 ; and ( ii ) a decrease in generation at some of our other power plants that were taken offline to address maintenance issues in the ordinary course of business as well as curtailments by the offtaker in the olkaria complex .
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we sell our products under our own proprietary brands , which include vilebrequin , g.h . bass , bass , andrew marc and marc new york , licensed brands and private retail labels . as of january 31 , 2015 , g-iii operated 185 wilsons leather stores and 156 g.h . bass stores , as well as 5 calvin klein performance stores . in addition , as of january 31 , 2015 vilebrequin products were distributed through 77 company 's owned stores and 23 franchise partners , as well as through select wholesale distribution . while our products are sold at a variety of price points through a broad mix of retail partners and our own stores , a majority of our sales are concentrated with our ten largest customers . sales to our ten largest customers comprised 63.7 % of our net sales in fiscal 2013 , 61.3 % of our net sales in 2014 and 58.4 % of our net sales in fiscal 2015. we operate in fashion markets that are intensely competitive . our ability to continuously evaluate and respond to changing consumer demands and tastes , across multiple market segments , distribution channels and geographic areas is critical to our success . although our portfolio of brands is aimed at diversifying our risks in this regard , misjudging shifts in consumer preferences could have a negative effect on our business . our success in the future will depend on our ability to design products that are accepted in the marketplace , source the manufacture of our products on a competitive basis , and continue to diversify our product portfolio and the markets we serve . we have three reportable segments : licensed products , non-licensed products and retail operations . the licensed products segment includes sales of products under brands licensed by us from third parties . the non-licensed products segment includes sales of products under our own brands and under private label brands . the retail operations segment consists primarily of the operations of our wilsons leather and g.h . bass stores , as well as a limited number of calvin klein performance stores . in june 2014 , we sold 1,725,000 shares of our common stock , for net proceeds of $ 128.7 million from the offering after payment of underwriting discounts and expenses of the offering . the net proceeds are currently being used for general corporate purposes . we have expanded our portfolio of proprietary and licensed brands through acquisitions and by entering into license agreements for new brands or for additional products under previously licensed brands . our acquisitions have helped to broaden our product offerings , expand our ability to serve different tiers of distribution and add a retail component to our business . acquisitions are part of our strategy to expand our product offerings and increase the portfolio of proprietary and licensed brands that we offer through different tiers of retail distribution . the g.h . bass business acquired in november 2013 added a well-known heritage brand that developed the iconic original penny loafer ( known as “ weejuns ” ) . we sell g.h . bass footwear , apparel and accessories primarily through g.h . bass outlet stores located in the united states . this acquisition doubled the size of our retail footprint and is expected to enable us to leverage our wilsons infrastructure to operate our bass stores . g.h . bass licenses the brand for wholesale distribution of men 's and women 's footwear and men 's sportswear . in addition , in march 2015 , we entered into a license agreement with genesco to design , distribute , and market g.h . bass men 's , women 's and children 's footwear in the united states and canada . 33 the line will be shown to customers this summer with first shipments expected for the spring 2016 season . we also intend to use our in-house expertise to produce certain key categories for bass , including our planned launch of bass women 's apparel for delivery in fall 2015. the vilebrequin business acquired in august 2012 provides us with a premier brand selling status products worldwide . vilebrequin is a well-known brand and we expect to add more company owned and franchised retail locations and increase our wholesale distribution throughout the world , as well as develop the business beyond its heritage in men 's swimwear , resort wear and related accessories . we have introduced sandals , as well as an improved collection of women 's swimwear and resort wear under the vilebrequin brand . the sale of licensed products is a key element of our business strategy and we have continually expanded our offerings of licensed products over the past 20 years . sales of licensed products accounted for 57.6 % of our net sales in fiscal 2015 , 64.1 % of our net sales in fiscal 2014 and 67.3 % of our net sales in fiscal 2013. our most significant licensor is calvin klein with whom we have ten different license agreements . we have also entered into distribution agreements with respect to calvin klein luggage in a limited number of countries in asia , europe and north america . since april 1 , 2012 , we have operated under an expanded five year license agreement with the national football league to manufacture and market men 's and women 's outerwear , sportswear , and swimwear products in the united states under a variety of nfl trademarks . in december 2012 , we entered into a license agreement covering a broad range of women 's apparel under the ivanka trump brand . we began shipping ivanka trump apparel in the third quarter of fiscal 2014. in april 2013 , we entered into a license agreement for men 's and women 's swimwear under the calvin klein brand . this license agreement became effective as of december 1 , 2013 and we began shipping swimwear under this agreement for the spring 2014 season . story_separator_special_tag in addition , we act as an agent in brokering sales between customers and overseas factories . on these transactions , we also recognize commission fee income on sales that are financed by and shipped directly to our customers . title to goods shipped by overseas vendors , transfers to customers when the goods have been delivered to the customer . net sales take into account reserves for returns and allowances . we estimate the amount of reserves and allowances based on current and historical information and trends . sales are reported net of returns , discounts and allowances . discounts , allowances and estimates of future returns are recognized when the related revenues are recognized . we recognize commission income upon the completion of the delivery by our vendors to the customer . we recognize retail sales upon customer receipt of our merchandise , generally at the point of sale . our retail sales are recorded net of applicable sales tax . 35 accounts receivable in the normal course of business , we extend credit to our wholesale customers based on pre-defined credit criteria . accounts receivable , as shown on our consolidated balance sheet , are net of allowances and anticipated discounts . in circumstances where we are aware of a specific customer 's inability to meet its financial obligation ( such as in the case of bankruptcy filings , extensive delay in payment or substantial downgrading by credit sources ) , a specific reserve for bad debts is recorded against amounts due to reduce the net recognized receivable to the amount reasonably expected to be collected . for all other wholesale customers , an allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements , assessments of collectability based on historical trends and an evaluation of the impact of economic conditions . an allowance for discounts is based on reviews of open invoices where concessions have been extended to customers . costs associated with allowable deductions for customer advertising expenses are charged to advertising expenses in the selling , general and administrative section of our consolidated statements of income . costs associated with markdowns and other operational charge backs , net of historical recoveries , are included as a reduction of net sales . all of these are part of the allowances included in accounts receivable . we reserve against known charge backs , as well as for an estimate of potential future deductions by customers . these provisions result from seasonal negotiations with our customers as well as historical deduction trends , net of historical recoveries and the evaluation of current market conditions . inventories wholesale inventories are stated at lower of cost ( determined by the first-in , first-out method ) or market , which comprises a significant portion of our inventory . retail inventories are valued at the lower of cost or market as determined by the retail inventory method . vilebrequin inventories are stated at the lower of cost ( determined by the weighted average method ) or market . we continually evaluate the composition of our inventories , assessing slow-turning , ongoing product as well as fashion product from prior seasons . the market value of distressed inventory is based on historical sales trends of our individual product lines , the impact of market trends and economic conditions , expected permanent retail markdowns and the value of current orders for this type of inventory . a provision is recorded to reduce the cost of inventories to the estimated net realizable values , if required . income taxes as part of the process of preparing our consolidated financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual current tax expense , together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within our consolidated balance sheet . goodwill and intangible assets asc 350 requires that goodwill and intangible assets with an indefinite life be tested for impairment at least annually and are required to be written down when impaired . we perform our test in the fourth fiscal quarter of each year , or more frequently , if events or changes in circumstances indicate the carrying amount of such assets may be impaired . goodwill and intangible assets with an indefinite life are tested for impairment by comparing the fair value of the reporting unit with its carrying value . fair value is generally determined using discounted cash flows , market multiples and market capitalization . significant estimates used in the fair value methodologies include estimates of future cash flows , future short-term and long-term growth rates , weighted average cost of capital and estimates of market multiples of the reportable unit . if these estimates or their related assumptions change in the future , we may be required to record impairment charges for our goodwill and intangible assets with an indefinite life . the process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis . in estimating the fair value of a reporting unit for the purposes of our annual or periodic analyses , we make estimates and judgments about the future cash flows of that reporting unit . although our cash flow forecasts are based on assumptions that are consistent with 36 our plans and estimates we are using to manage the underlying businesses , there is significant exercise of judgment involved in determining the cash flows attributable to a reporting unit over its estimated remaining useful life . in addition , we make certain judgments about allocating shared assets to the estimated balance sheets of our reporting units . we also consider our and our competitor 's market capitalization on the date we perform the analysis . changes in judgment on these assumptions and estimates could result in a goodwill impairment charge .
| results of operations the following table sets forth selected operating data as a percentage of our net sales for the fiscal years indicated below : 2015 2014 2013 net sales 100.0 % 100.0 % 100.0 % cost of goods sold 64.2 66.0 67.8 gross profit 35.8 34.0 32.2 selling , general and administrative expenses 27.0 25.6 24.4 depreciation and amortization 1.0 0.8 0.6 operating profit 7.8 7.6 7.2 equity loss in joint venture — * — * ( 0.1 ) other income 0.5 — — interest and financing charges , net
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name title date joseph sardano chief executive officer and chairman march 15 , 2019 joseph sardano ( principal executive officer ) arthur levine chief financial officer march 15 , 2019 arthur levine ( principal financial and accounting officer ) john heinrich director march 15 , 2019 john heinrich william h. mccall director march 15 , 2019 william h. mccall samuel o'rear director march 15 , 2019 samuel o'rear anthony b. petrelli director march 15 , 2019 anthony b. petrelli 63 exhibit index exhibit no . description 2.1 agreement and plan of merger , dated as of december 12 , 2011 , by and between sensus healthcare , llc and sensus healthcare , llc – incorporated by reference to exhibit 2.1 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 2.2 plan of conversion of sensus healthcare , llc – incorporated by reference to exhibit 2.2 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 3.1 amended and restated certificate of incorporation of sensus healthcare , inc. – incorporated by reference to exhibit 3.1 to the company 's amendment no . 2 to registration statement on form s-1 ( filed 3/25/16 ) ( no . 333-209451 ) . 3.2 bylaws of sensus healthcare , inc. – incorporated by reference to exhibit 3.2 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 4.1 form of representatives ' warrant to purchase units– incorporated by reference to exhibit 4.7 of the company 's amendment no . 4 to registration statement on form s-1 ( filed 5/19/16 ) ( no . 333-209451 ) . 4.2 form of indenture – incorporated by reference to exhibit 4.2 of the company 's registration statement on form s-3 ( filed 11/6/17 ) ( no . 333-221371 ) . 4.3 form of warrant agreement , by and between sensus healthcare , inc. and american stock transfer & trust company , llc , as warrant agent , including warrant certificate – incorporated by reference to amendment no . 3 to the company 's registration statement on form s-1/a ( filed 5/13/16 ) ( no . 333-209451 ) . 10.1 amended and restated loan and security agreement by and between sensus healthcare , llc and silicon valley bank , dated as of march 12 , 2013 – incorporated by reference to exhibit 10.2 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 64 10.2 default waiver and first amendment to amended and restated loan and security agreement by and between sensus healthcare , llc and silicon valley bank , dated may 12 , 2015 – incorporated by reference to exhibit 10.3 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 10.3 second amendment and restated loan and security agreement by and between sensus healthcare , inc. and silicon valley bank , dated september 21 , 2016 – incorporated by reference to exhibit 10.1 of the company 's quarterly report on form 10-q ( filed 11/7/16 ) ( no . 001-37714 ) . 10.4 office lease agreement , dated as of july 26 , 2010 , by and between rexall story_separator_special_tag you should read the following management 's discussion and analysis ( “ md & a ” ) in conjunction with the information set forth within the financial statements and related notes included in this annual report on form 10-k. the following information should provide a better understanding of the major factors and trends that affect our earnings performance and financial condition , and how our performance during 2018 compares with the prior year . throughout this section , sensus healthcare , inc. is referred to as “ company , ” “ we , ” “ us , ” or “ our. ” 36 caution concerning forward-looking statements this annual report on form 10-k , including this md & a section , contains “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. these forward-looking statements include , among others , statements about our beliefs , plans , objectives , goals , expectations , estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors , many of which are beyond our control . the words “ may , ” “ could , ” “ should , ” “ would , ” “ believe , ” “ anticipate , ” “ estimate , ” “ expect , ” “ intend , ” “ plan , ” “ target , ” “ goal , ” and similar expressions are intended to identify forward-looking statements . all forward-looking statements , by their nature , are subject to risks and uncertainties . our actual future results may differ materially from those set forth in our forward-looking statements . please see the introductory note and item 1a risk factors of this annual report for a discussion of factors that could cause our actual results to differ materially from those in the forward-looking statements . however , other factors besides those listed in item 1a risk factors or discussed in this annual report also could adversely affect our results , and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties . any forward-looking statements made by us or on our behalf speak only as of the date they are made . we do not undertake to update any forward-looking statement , except as required by applicable law . story_separator_special_tag beginning in 2016 , as a result of our conversion to a delaware corporation , we began recording a provision for income tax ( benefit ) expense , which consists of income taxes in jurisdictions in which we conduct business . we are taxed at the rates applicable within each jurisdiction in which we operate or generate revenue . the composite income tax rate , tax provisions , deferred tax assets and deferred tax liabilities vary according to the jurisdiction in which profits arise . tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities , and require us to exercise judgment in determining our income tax provision , our deferred tax assets and liabilities and the valuation allowance recorded against our net deferred tax assets . deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized . a valuation allowance is established when it is more likely than not that the future realization of all or some of the deferred tax assets will not be achieved . 38 on december 22 , 2017 , the united states enacted new federal tax reform legislation , resulting in significant changes from the prior tax law . the new tax law reduced the federal corporate income tax rate to 21 % from 35 % , effective january 1 , 2018. our federal income tax expense for periods beginning in 2018 was based on the new rate . the new tax law also permits immediate deduction of 100 % of the costs of qualified property that have been incurred and the property placed in service during the period from september 27 , 2017 to december 31 , 2022. this provision will begin to phase out by 20 % per year beginning january 1 , 2023 and will be completely phased out as of january 1 , 2027. our subsidiary in israel is taxed on its taxable income . the current corporate tax rate in israel is 23 % . inflation inflation has not had a material impact on net sales , revenues or income from operations for our two most recent years as a result of historically low levels of inflation . story_separator_special_tag margin-left : 0in ; text-indent : 0in '' > ● fluctuations in gross margins , operating expenses and net results ; and ● fluctuations in working capital . our primary short-term capital needs , which are subject to change , include expenditures related to : ● expansion of our sales and marketing activities ; and ● expansion of our research and development activities . we regularly evaluate our cash requirements for current operations , commitments , capital requirements and business development transactions , and we may elect to raise additional funds for these purposes in the future . 40 cash flows the following table provides a summary of our cash flows for the periods indicated : replace_table_token_3_th cash flows from operating activities net cash used in operating activities was $ 8,517,760 for the year ended december 31 , 2018 , consisting of a net loss of $ 2,022,761 and an increase in net operating assets of $ 8,244,406 , partially offset by non-cash charges of $ 1,749,406. the increase in net operating assets was primarily due to the increase in sales and other longer payment terms on certain sales , resulting in an increase in accounts receivable , an increase in prepaid and other current assets and an increase in account payable and accrued expenses . non-cash charges consisted primarily of stock compensation expense and depreciation and amortization . net cash used in operating activities was $ 3,056,606 for the year ended december 31 , 2017 , consisting of a net loss of $ 3,710,514 and an increase in net operating assets of $ 568,857 , offset by non-cash charges of $ 1,222,765. cash flows from investing activities net cash used in investing activities was $ 2,688,360 due the purchase of debt securities held-to-maturity of $ 2,892,190 and $ 900,805 for acquisition of property and equipment offset by matured investments of $ 1,104,635 during the year ended december 31 , 2018. net cash provided in investing activities totaled $ 6,173,913 for the year ended december 31 , 2017 , which consisted of matured investments of $ 6,461,507 less $ 287,594 for acquisition of property and equipment . cash flows from financing activities net cash provided by financing activities was $ 13,604,908 during the year ended december 31 , 2018 , mostly from the gross proceeds of $ 17,249,995 from the offering of common stock and $ 90,867 from exercise of warrants , partially offset by $ 2,214,970 repayment of our revolving credit facility , offering costs of $ 1,402,336 and $ 118,648 in withholding tax on stock compensation . net cash provided by financing activities was $ 1,925,684 during the year ended december 31 , 2017 of which $ 2,214,970 was from borrowing under our line of credit , partially offset by $ 289,286 on withholding taxes paid on stock compensation . indebtedness please see note 4 to the financial statements . contractual obligations and commitments in july 2016 , we renewed our lease with an unrelated third party for its headquarters office . the renewal was effective september 1 , 2016 and expanded the office space being occupied . the lease expires in september 2022 and lease payments increase by 3 % annually . in february 2017 and january 2018 , we signed amendments to further expand our leased office space . our wholly owned israeli subsidiary also entered into a two-year lease for office space in september 2018. future minimum lease payments as of december 31 , 2018 are as follows : replace_table_token_4_th 41 off-balance sheet arrangements we did not have during the periods presented , and do not currently have , any off-balance sheet arrangements . critical accounting policies and estimates our discussion
| results of operations replace_table_token_2_th year ended december 31 , 2018 compared to the year ended december 31 , 2017 total revenue . total revenue was $ 26,427,190 for the year ended december 31 , 2018 compared to $ 20,587,827 for the year ended december 31 , 2017 , an increase of $ 5,839,363 , or 28.4 % . the growth in revenue was attributable to an increase in the volume of systems sold as well as a higher percentage of sales of the higher-priced srt-100 vision product in the current year . total cost of sales . cost of sales was $ 9,516,302 for the year ended december 31 , 2018 compared to $ 6,787,836 for the year ended december 31 , 2017 , an increase of $ 2,728,466 , or 40.2 % . the increase in cost was due to a greater number of systems sold during the year ended december 31 , 2018 compared to the corresponding period in 2017. gross profit . gross profit was $ 16,910,888 for the year ended december 31 , 2018 compared to $ 13,799,991 for the year ended december 31 , 2017 , an increase of $ 3,110,897 or 22.5 % , for the reasons discussed above . our overall gross profit margin was 64.0 % in the year ended december 31 , 2018 compared to 67.0 % in the corresponding period in 2017 , mainly due to the mix of products sold during 2018 . 39 selling and marketing . selling and marketing expense was $ 8,531,622 for the year ended december 31 , 2018 compared to $ 8,305,315 for the year ended december 31 , 2017 , an increase of $ 226,307 or 2.7 % . the increase was primarily attributable to an increase in commission expense directly related to the increase in sales offset by a reduction in marketing activities during 2018. general and administrative .
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we record interest income on certain impaired loans to the extent cash is received , as the borrower continues to make interest payments . we record loan loss reserves related to these loans when it is deemed that full recovery of principal and accrued interest is not probable . several of our loans provide for accrual story_separator_special_tag you should read the following discussion in conjunction with the sections of this report entitled `` forward-looking statements , '' `` risk factors '' and `` selected financial data , '' along with the historical consolidated financial statements including related notes , included in this report . story_separator_special_tag dividend paid in the prior year comparable quarter of $ 0.17 per share . agency business activity . loan originations and sales totaled $ 4.46 billion and $ 4.81 billion , respectively ; and 44 our fee-based servicing portfolio grew 19.6 % to $ 16.21 billion from $ 13.56 billion at december 31 , 2016. structured business activity . loan originations totaled $ 1.84 billion with a weighted average interest rate of 7.04 % ; loan runoff totaled $ 924.1 million with a weighted average interest rate of 7.10 % ; a fully reserved mezzanine loan with a upb of $ 1.8 million paid off in full , resulting in a $ 1.8 million reserve recovery ; and we recorded impairment losses totaling $ 3.2 million on real estate owned properties based on impairment analyses performed . current market conditions , risks and recent trends our ability to execute our business strategy , particularly the growth of our structured business portfolio of loans and investments , depends on many factors , including our ability to access capital and financing on favorable terms . the past economic downturn had a significant negative impact on both us and our borrowers and limited our ability for growth . if similar economic conditions recur in the future , it may limit our options for raising capital and obtaining financing on favorable terms and may also adversely impact the creditworthiness of our borrowers which could result in their inability to repay their loans . we rely on the capital markets to generate capital for financing the growth of our business . while we have been successful in generating capital through the debt and equity markets throughout 2017 , there can be no assurance that we will continue to have access to such markets . if we were to experience a prolonged downturn in the stock or credit markets , it could cause us to seek alternative sources of potentially less attractive financing , and may require us to adjust our business plan accordingly . the federal reserve increased its targeted federal rate three times in 2017 for an aggregate increase of 75 basis points . to date , we have not been significantly impacted by these increases and do not anticipate a significant decline in origination volume or profitability as interest rates remain at historically low levels . we expect the current interest rate environment to continue for the near term as the federal reserve has stated that it will take a measured and conservative approach to future interest rate decisions . the trump administration continues to focus on several issues that could impact interest rates and the u.s. economy , including the recently enacted tax reform . as a result of the tax reform , we expect to realize a benefit from the reduction of the corporate federal income tax rate from 35 % to 21 % , as our agency buisiness operates in a trs . while there is uncertainty regarding the specifics and timing of any future policy changes , any such actions could impact our business . we are a national originator with fannie mae and freddie mac , and the gses remain the most significant providers of capital to the multifamily market . the federal housing finance agency ( `` fhfa '' ) released the gse 2018 scorecard ( `` 2018 scorecard , '' ) which established fannie mae 's and freddie mac 's loan origination caps at $ 35.0 billion ( `` 2018 caps '' ) each for the multifamily finance market , a $ 1.5 billion decrease from the 2017 loan origination caps . affordable housing loans , loans to small multifamily properties , and manufactured housing rental community loans continue to be excluded from the 2018 caps . in addition , the definition of the affordable loan exclusions has added an extremely-high cost market category , continues to encompass affordable housing in high- and very-high cost markets and allows for an exclusion from the 2018 caps for the pro-rata portion of any loan on a multifamily property that includes affordable units . the 2018 scorecard continues to provide fhfa the 45 flexibility to review the estimated size of the multifamily loan origination market quarterly and proactively adjust the 2018 caps accordingly . the 2018 scorecard also continues to provide exclusions for loans to properties in underserved markets and for loans to finance certain energy or water efficiency improvements , however , to qualify for this exclusion , the projected annual energy or water savings must be at least 25 % . our originations with the gses are highly profitable executions as they provide significant gains from the sale of our loans , non-cash gains related to msrs and servicing revenues , therefore , a decline in our gse originations would negatively impact our financial results . we are unsure whether the fhfa will impose stricter limitations on gse multifamily production volume in the future . the commercial real estate markets continue to improve , but uncertainty remains as a result of global market instability , the current political climate and other matters and their potential impact on the u.s. economy and commercial real estate markets . in addition , the growth in multifamily rental rates seen over the past few years are showing signs of stabilizing . story_separator_special_tag liabilitiescomparison of balances at december 31 , 2017 to december 31 , 2016 : credit facilities and repurchase agreements decreased $ 378.1 million , primarily due to a $ 368.6 million decrease in financings on our loans held-for-sale , as a result of loan sales exceeding loan originations during 2017. collateralized loan obligations increased $ 690.0 million due to the issuances of three new clos , where we issued a total of $ 918.3 million of notes to third party investors , partially offset by the unwind of a clo totaling $ 219.0 million . we formed a debt fund where we issued an aggregate of $ 70.0 million of floating rate notes to third party investors . see note 12debt obligations for details . convertible senior unsecured notes increased $ 150.6 million , primarily due to the issuance of $ 143.8 million of 5.375 % convertible senior unsecured notes and an additional $ 13.8 million of the 6.50 % convertible senior unsecured notes . see note 12debt obligations for details . junior subordinated notes decreased $ 18.3 million , primarily due to the repurchase of certain of our junior subordinated notes with a carrying value of $ 19.8 million . we recorded a gain of $ 7.1 million upon extinguishment of this debt in the first quarter of 2017. equity in may 2017 , we completed a public offering where we sold 9,500,000 shares of our common stock for $ 8.05 per share , and received net proceeds of $ 76.2 million . we used $ 25.0 million of the proceeds to exercise our option to fully internalize our management team and terminate the existing management agreement with our former manager . the remaining amount was used to make investments and for general corporate purposes . we currently have $ 179.8 million available under our $ 500.0 million shelf registration statement . distributions the following table presents dividends declared ( on a per share basis ) for 2017 : replace_table_token_12_th ( 1 ) the dividend declared on november 1 , 2017 was for september 1 , 2017 through november 30 , 2017. the dividend declared on august 2 , 2017 was for june 1 , 2017 through august 31 , 2017. the dividend declared on may 3 , 2017 was for march 1 , 2017 through may 31 , 2017. the dividend declared on february 3 , 2017 was for december 1 , 2016 through february 28 , 2017. common stock on february 21 , 2018 , the board of directors declared a cash dividend of $ 0.21 per share of common stock . the dividend is payable on march 21 , 2018 to common stockholders of record as of the close of business on march 8 , 2018 . 48 preferred stock on february 2 , 2018 , the board of directors declared a cash dividend of $ 0.515625 per share of 8.25 % series a preferred stock ; a cash dividend of $ 0.484375 per share of 7.75 % series b preferred stock ; and a cash dividend of $ 0.53125 per share of 8.50 % series c preferred stock . these amounts reflect dividends from december 1 , 2017 through february 28 , 2018 and are payable on february 28 , 2018 to preferred stockholders of record on february 15 , 2018. deferred compensation in 2017 , we issued 395,339 shares of restricted stock to employees of ours and our former manager , including our chief executive officer , 74,375 shares to the independent members of the board of directors and up to 448,980 performance-based restricted common stock units to our chief executive officer . we also granted our chief executive officer 357,569 shares of performance-based restricted stock as a result of meeting the goals related to the integration of the acquisition . see note 18equity for details . 49 comparison of results of operations for years ended 2017 and 2016 the following table provides our consolidated operating results ( $ in thousands ) : replace_table_token_13_th nmnot meaningful 50 the following table presents the average balance of our structured business interest-earning assets and interest-bearing liabilities , associated interest income ( expense ) and the corresponding weighted average yields ( $ in thousands ) : replace_table_token_14_th ( 1 ) based on upb for loans , amortized cost for securities and principal amount for debt . ( 2 ) weighted average yield calculated based on annualized interest income or expense divided by average carrying value . net interest income the increase in interest income is comprised of $ 26.9 million from our structured business and $ 13.1 million from our agency business . the $ 26.9 million , or 25 % , increase from our structured business was primarily due to a 16 % increase in our average core interest-earning assets , as a result of loan originations exceeding loan payoffs , and a 7 % increase in the average yield on core interest-earning assets , largely due to increases in the average libor rate and acceleration fees from early runoff . the increase in our agency business is due to the full period impact in 2017 of the acquisition completed in the third quarter of 2016. other interest income , net was $ 2.5 million in 2016. during 2015 , we acquired a $ 116.0 million defaulted first mortgage at par , which paid off during 2015. in 2016 , additional funds held in escrow from the note payoff were released following an arbitration proceeding and we recognized net other interest income totaling $ 2.5 million . 51 the increase in interest expense is comprised of $ 16.2 million from our structured business , $ 8.2 million from our agency business and $ 2.1 million from the seller financing entered into in connection with the acquisition . the $ 16.2 million , or 28 % , increase from our structured business was primarily due to a 20 % increase in the average balance of our interest-bearing liabilities and a 7 % increase in the average cost of our interest-bearing liabilities .
| overview through our structured business , we invest in a diversified portfolio of structured finance assets in the multifamily and commercial real estate markets , primarily consisting of bridge and mezzanine loans , including junior participating interests in first mortgages , preferred and direct equity . through our agency business , we originate , sell and service a range of multifamily finance products through gse , hud and cmbs programs . we retain the servicing rights and asset management responsibilities on substantially all loans we originate and sell under the gse and hud programs . we were previously externally managed and advised by acm and , on may 31 , 2017 , we exercised our option to fully internalize our management team and terminate the existing management agreement . see note 1description of business for details about our business segments and note 3acquisition of our former manager 's agency platform for details about the acquisition and termination of the management agreement . we conduct our operations to qualify as a reit . a reit is generally not subject to federal income tax on its reit-taxable income that is distributed to its stockholders , provided that at least 90 % of its reit-taxable income is distributed and provided that certain other requirements are met . our operating performance is primarily driven by the following factors : net interest income earned on our investments . net interest income represents the amount by which the interest income earned on our assets exceeds the interest expense incurred on our borrowings . if the yield on our assets increases or the cost or borrowings decreases , this will have a positive impact on earnings . however , if the yield earned on our assets decreases or the cost of borrowings increases , this will have a negative impact on earnings . net interest income is also directly impacted by the size and performance of our asset portfolio .
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42 cohu , inc. notes to consolidated financial statements the following table summarizes , by major security type , our financial instruments that are measured at fair value on a recurring basis and are categorized using story_separator_special_tag overview cohu is a leading supplier of semiconductor test and inspection handlers , micro-electro mechanical system ( mems ) test modules , test contactors and thermal sub-systems used by global semiconductor manufacturers and test subcontractors . our business is significantly dependent on capital expenditures by semiconductor manufacturers and test subcontractors , which in turn is dependent on the current and anticipated market demand for semiconductors that is subject to seasonal trends . we expect that the semiconductor equipment industry will continue to be seasonal and volatile in part because consumer electronics , the principal end market for integrated circuits , is a highly dynamic industry and demand has traditionally fluctuated . orders for semiconductor test and assembly equipment as reported by semiconductor equipment and materials international ( semi ) increased sequentially each month from october 2015 through january 2016 followed by declining orders in february and march 2016. the downward order momentum within the back-end equipment segment ceased in march 2016 with global orders for equipment increasing during the second quarter reaching a peak in june and then declining throughout the second half of the year until rebounding in december . our net sales in 2016 were up 4.6 % from 2015 and benefitted from demand for equipment for testing devices used in mobile , automotive and computing applications . we monitor our customers ' test floors , and equipment utilization increased slightly at the end of the year . looking ahead , we see momentum in the automotive and mobile markets and are optimistic about the long-term prospects for the semiconductor equipment industry due to the increasing technological functionality of mobile devices , growing integrated circuit and led content in automobiles and consumer products , and expanding applications in industrial . we are focused on growing our market share in the mobility , automotive and solid state markets and expanding into the test contacting and wafer level package test markets . 17 application of critical accounting estimates and policies our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we base our estimates on historical experience , forecasts and on various other assumptions that are believed to be reasonable under the circumstances , however actual results may differ from those estimates under different assumptions or conditions . the methods , estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements . some of our accounting policies require us to make difficult and subjective judgments , often as a result of the need to make estimates of matters that are inherently uncertain . our critical accounting estimates that we believe are the most important to investors ' understanding of our financial results and condition and require complex management judgment include : ● revenue recognition , including the deferral of revenue on sales to customers , which impacts our results of operations ; ● estimation of valuation allowances and accrued liabilities , specifically product warranty , inventory reserves and allowance for bad debts , which impact gross margin or operating expenses ; ● the recognition and measurement of current and deferred income tax assets and liabilities , unrecognized tax benefits and the valuation allowance on deferred tax assets , which impact our tax provision ; ● the assessment of recoverability of long-lived assets including goodwill and other intangible assets , which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation ; and ● the valuation and recognition of share-based compensation , which impacts gross margin , research and development expense , and selling , general and administrative expense . below , we discuss these policies further , as well as the estimates and judgments involved . we also have other policies that we consider key accounting policies ; however , these policies typically do not require us to make estimates or judgments that are difficult or subjective . revenue recognition : we generally recognize revenue upon shipment and title passage for established products ( i.e. , those that have previously satisfied customer acceptance requirements ) that provide for full payment tied to shipment . revenue for products that have not previously satisfied customer acceptance requirements or from sales where customer payment dates are not determinable is recognized upon customer acceptance . in certain instances , customer payment terms may provide that a minority portion ( e.g . up to 20 % ) of the equipment purchase price be paid only upon customer acceptance . in those situations , the majority portion ( e.g . 80 % ) of revenue where the contingent payment is tied to shipment and the entire product cost of sale are recognized upon shipment and passage of title and the minority portion of the purchase price related to customer acceptance is deferred and recognized upon receipt of customer acceptance . for arrangements containing multiple elements the revenue relating to the undelivered elements is deferred using the relative selling price method utilizing estimated sales prices until delivery of the deferred elements . we limit the amount of revenue recognition for delivered elements to the amount that is not contingent on the future delivery of products or services , future performance obligations or subject to customer-specified return or adjustment . on shipments where sales are not recognized , gross profit is generally recorded as deferred profit in our consolidated balance sheet , representing the difference between the receivable recorded and the inventory shipped . story_separator_special_tag conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset , a significant change in the extent or manner in which an asset is used , or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable . for long-lived assets , impairment losses are only recorded if the asset 's carrying amount is not recoverable through its undiscounted , probability-weighted future cash flows . we measure the impairment loss based on the difference between the carrying amount and estimated fair value . 19 contingencies : we are subject to certain contingencies that arise in the ordinary course of our businesses which require us to assess the likelihood that future events will confirm the existence of a loss or an impairment of an asset . if a loss or asset impairment is probable and the amount of the loss or impairment is reasonably estimable , we accrue a charge to operations in the period such conditions become known . share-based compensation : share-based compensation expense related to stock options is recorded based on the fair value of the award on its grant date , which we estimate using the black-scholes valuation model . share-based compensation expense related to restricted stock unit awards is calculated based on the market price of our common stock on the grant date , reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit . share-based compensation on performance stock units with market-based goals is calculated using a monte carlo simulation model on the date of the grant . share-based compensation for the year ended december 31 , 2016 was impacted by our adoption of accounting standards update ( “ asu ” ) no . 2016-09 , compensation - stock compensation ( topic 718 ) : improvements to employee share-based payment accounting ( asu 2016-09 ) in the fourth quarter of 2016. for further information regarding our adoption of asu 2016-09 please see note 1 , “ recent accounting pronouncements ” in part iv , item 15 ( a ) of this form 10-k. recent accounting pronouncements : for a description of accounting changes and recent accounting pronouncements , including the expected dates of adoption and estimated effects , if any , on our consolidated financial statements , see note 1 , `` recent accounting pronouncements '' in part iv , item 15 ( a ) of this form 10-k. story_separator_special_tag font-family : times new roman , times , serif '' > gain on sale of facility on december 4 , 2015 , we completed the sale of our headquarters facility located in poway , california for $ 34.1 million . after payment of commissions and other fees associated with the sale we realized net cash proceeds of $ 33.3 million , which resulted in a total gain of $ 18.5 million . we accounted for this transaction in accordance with asc subtopic 840-40 , sale-leaseback transactions , and recognized a gain on the completion of the sale totaling $ 3.2 million . the portion of the gain not recognized at the time the sale was completed has been deferred and is being recognized on a straight-line basis over the 10-year term of the lease in line with the recognition of rental expense related to the lease . during 2016 , we amortized $ 2.0 million of the deferred gain to income . income taxes the income tax provision expressed as a percentage of pre-tax income in 2016 and 2015 was 45.7 % and 27.6 % , respectively . the income tax provision for the years ended december 31 , 2016 and december 26 , 2015 differs from the u.s. federal statutory rate primarily due to releases from statute expirations , non-deductible transaction costs , tax credits , changes in the valuation allowance on our deferred tax assets , foreign income taxed at different rates and other factors . companies are required to assess whether a valuation allowance should be recorded against their deferred tax assets ( “ dtas ” ) based on the consideration of all available evidence , using a “ more likely than not ” realization standard . the four sources of taxable income that must be considered in determining whether dtas will be realized are , ( 1 ) future reversals of existing taxable temporary differences ( i.e . offset of gross deferred tax assets against gross deferred tax liabilities ) ; ( 2 ) taxable income in prior carryback years , if carryback is permitted under the tax law ; ( 3 ) tax planning strategies and ( 4 ) future taxable income exclusive of reversing temporary differences and carryforwards . 21 in assessing whether a valuation allowance is required , significant weight is to be given to evidence that can be objectively verified . we have evaluated our dtas each reporting period , including an assessment of our cumulative income or loss over the prior three-year period and future periods , to determine if a valuation allowance was required . a significant negative factor in our assessment was cohu 's three-year cumulative u.s. loss history at the end of various fiscal periods including 2016. as a result of our cumulative , three-year u.s. gaap pretax loss from continuing operations of approximately $ 17.6 million at the end of 2016 , and our u.s. loss in 2016 , we were unable to conclude at december 31 , 2016 that it was “ more likely than not ” that our u.s. dtas would be realized . we will evaluate the realizability of our dtas at the end of each quarterly reporting period in 2017 and , should circumstances change , it is possible the remaining valuation allowance , or a portion thereof , will be reversed in a future period .
| results of operations in june 2015 , we sold our mobile microwave communications equipment business and in june 2014 , we sold our video camera business . the operating results of these businesses are being presented as discontinued operations and all prior period amounts have been reclassified . unless otherwise indicated , the discussion below covers the comparative results from continuing operations . the following table summarizes certain operating data as a percentage of net sales : replace_table_token_7_th 2016 compared to 2015 net sales cohu 's consolidated net sales increased 4.6 % from $ 269.7 million in 2015 to $ 282.1 million in 2016. our consolidated net sales in 2016 are up from 2015 and reflect the improving business conditions in the semiconductor industry and demand for equipment for testing devices used in mobile , automotive and computing applications . gross margin gross margin consists of net sales less cost of sales . cost of sales consists primarily of the materials , assembly and test labor and overhead from operations . our gross margin can fluctuate due to a number of factors , including , but not limited to , the mix of products sold , product support costs , increase to inventory reserves or the sale of previously reserved inventory and utilization of manufacturing capacity . our gross margin , as a percentage of net sales , increased to 33.6 % in 2016 from 33.0 % in 2015 . 20 we compute the majority of our excess and obsolete inventory reserve requirements using a one-year inventory usage forecast . during 2016 and 2015 , we recorded net charges to cost of sales of approximately $ 1.1 million and $ 2.4 million , respectively , for excess and obsolete inventory .
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the story_separator_special_tag introduction the following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k to enhance the understanding of our financial condition , changes in financial condition and results of operations . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to , those provided in item 1a . risk factors and under the heading `` cautionary statement regarding forward-looking statements '' below . the consolidated financial statements include the consolidated results of the the adt corporation and its subsidiaries ( hereinafter referred to as `` we , '' `` our , '' the `` company '' or `` adt '' ) . the financial statements have been prepared in united states dollars ( `` usd '' ) , in accordance with generally accepted accounting principles in the united states of america ( `` gaap '' ) . unless otherwise indicated , references to 2015 , 2014 and 2013 are to our fiscal years ended september 25 , 2015 , september 26 , 2014 and september 27 , 2013 , respectively . we have a 52- or 53-week fiscal year that ends on the last friday in september . fiscal years 2015 , 2014 and 2013 are 52-week years . our next 53-week year will occur in fiscal year 2016. on october 14 , 2015 , our board of directors approved a change to our fiscal year end from the last friday in september to september 30 of each year , and thereafter the end of each fiscal quarter will be the last day of the calendar month end . the fiscal year change is effective for our 2016 fiscal year , which began on september 26 , 2015 , the day after the last day of our 2015 fiscal year , and will end on september 30 , 2016. this change better aligns our external reporting with the monthly recurring nature of revenues and expenses associated with our customer base . business overview adt is a leading provider of monitored security , interactive home and business automation and related monitoring services . we currently serve approximately 6.6 million residential and business customers , making us the largest company of our kind in both the united states and canada . with over a 140-year history , the adt ® brand is one of the most respected , trusted and well-known brands in the monitored security industry today . our broad and pioneering set of products and services , including interactive home and business solutions and our home health services , meet a range of customer needs for today 's active and increasingly mobile lifestyles . our partner network is the broadest in the industry , and includes independent , third-party authorized dealers , affinity organizations and third-party referral companies . adt delivers an integrated customer experience by maintaining the industry 's largest sales , installation and service field force as well as a monitoring network , all backed by the support of approximately 17,100 employees and about 180 sales and service offices . we conduct business through our operating entities . during the fourth quarter of fiscal year 2015 , we finalized our reporting structure following the acquisition of protectron , see note 2 to our consolidated financial statements for details about this acquisition . in connection with this reporting structure finalization , the manner in which the chief executive officer , who is the chief operating decision maker , evaluates performance and makes decisions about how to allocate resources changed , resulting in the reorganization of our operating segments . we now have two reportable segments , which are our operating segments . operating results are reported based on the following two segments : united states : includes sales , installation and monitoring for residential , business , and health customers in the united states and puerto rico , as well as corporate expenses and other operating costs associated with support functions in the u.s. canada : includes sales , installation and monitoring for residential , business and health customers in canada as well as operating expenses associated with certain support functions in canada . prior to the fourth quarter of fiscal year 2015 , we reported financial and operating information in one segment . where applicable , prior period amounts reported herein are based on the new segment structure . see note 1 to our consolidated financial statements for additional information . 34 for fiscal year 2015 , our consolidated revenue was $ 3.6 billion and our consolidated operating income was $ 639 million . the majority of the monitoring and home/business automation services and a large portion of the maintenance services we provide to our customers are governed by multi-year contracts with automatic renewal provisions . this provides us with significant recurring revenue , which for fiscal year 2015 was approximately 93 % of our consolidated revenue . we believe that the recurring nature of the majority of our revenue combined with our large customer base and increasing average revenue per customer , enables us to continuously invest in growing and optimizing our business . this includes investments ( i ) in technologies to further enhance the attractiveness of our solutions to current and potential customers ; ( ii ) to continue development and training to enable our direct sales , installation , customer service and field service personnel to more effectively deliver exceptional service to our customers ; ( iii ) to expand our independent authorized dealer and partner networks ; and ( iv ) to make continued enhancements to operational efficiency . factors affecting operating results our subscriber-based business requires significant upfront investment to generate new customers , which in turn provide predictable recurring revenue generated from monthly monitoring fees . story_separator_special_tag recurring customer revenue is generated by contractual monthly recurring fees for monitoring and other recurring services provided to our customers . our other revenue consists of revenue associated with the sale of equipment , amortization of deferred revenue related to upfront fees , non-routine repair and maintenance services and customer termination charges . average revenue per customer . average revenue per customer measures the average amount of recurring revenue per customer per month , excluding contracts monitored but not owned , and is calculated based on the recurring revenue under contract at the end of the period divided by the total number of customers under contract at the end of the period . cost to serve expenses . cost to serve expenses represent the cost of providing services to our customers reflected in our consolidated statements of operations . these expenses include costs associated with service calls for customers who have maintenance contracts , costs of monitoring , call center customer service and guard response , partnership commissions and continuing equity programs , bad debt expense and general and administrative expenses . recurring customer revenue less cost to serve expenses represents our recurring revenue margin . gross subscriber acquisition cost expenses . gross subscriber acquisition cost expenses represent certain costs related to the acquisition of new customers reflected in our consolidated statements of operations such as advertising , marketing , and both direct and indirect selling costs for all new customer accounts as well as sales commissions and installation equipment and labor costs associated with transactions where title to the security system is contractually transferred to the customer . adjusted earnings before interest , taxes , depreciation and amortization ( `` adjusted ebitda '' ) . adjusted ebitda is a non-gaap measure reflecting net income adjusted for interest , taxes and certain non-cash items which include depreciation of subscriber system assets and other fixed assets , amortization of deferred costs and deferred revenue associated with customer acquisitions , and amortization of dealer and other intangible assets . adjusted ebitda is also adjusted to exclude charges and gains related to acquisitions , restructurings , impairments , and other income or charges . such items are excluded to eliminate the impact of items that management does not consider indicative of our core operating performance and or business trends . we believe adjusted ebitda is useful to provide investors with information about operating profits , adjusted for significant non-cash and other items , generated from the existing customer base . a reconciliation of adjusted ebitda to net income ( the most comparable gaap measure ) and additional information , including a description of the limitations relating to the use of adjusted editda , are provided under `` -non-gaap measures . '' adjusted pre subscriber acquisition cost ebitda ( `` adjusted pre-sac ebitda '' ) . adjusted pre-sac ebitda is a non-gaap measure reflecting adjusted ebitda , as discussed above , adjusted for gross subscriber acquisition cost expenses and revenue associated with the sale of equipment . we believe adjusted pre-sac ebitda is useful to provide investors with information on the operational profits from our existing customer base by excluding certain revenue and expenses related to acquiring new customers . a reconciliation of adjusted pre-sac ebitda to net income ( the most comparable gaap measure ) and additional information , including a description of the limitations relating to the use of adjusted pre-sac ebitda , are provided under `` -non-gaap measures . '' 36 free cash flow ( `` fcf '' ) . fcf is a non-gaap measure that our management employs to measure cash that is available to repay debt , make other investments and return capital to stockholders through dividends and share repurchases . the difference between net cash provided by operating activities ( the most comparable gaap measure ) and fcf is the deduction of cash outlays for capital expenditures , subscriber system assets , dealer generated customer accounts and bulk account purchases . a reconciliation of fcf to net cash provided by operating activities and additional information , including a description of the limitations relating to the use of fcf , are provided under `` -non-gaap measures . '' story_separator_special_tag style= '' line-height:120 % ; padding-top:10px ; text-align : left ; font-size:10pt ; '' > interest expense , net net interest expense is comprised primarily of interest on our long-term debt . interest expense , net was $ 205 million for fiscal year 2015 compared with $ 192 million for fiscal year 2014 . interest expense for fiscal year 2015 reflects an increase in borrowings related to the issuance of $ 300 million in senior unsecured notes in december 2014. other income ( expense ) other income was $ 3 million for fiscal year 2015 , compared with other expense of $ 35 million for fiscal year 2014 . other expense for fiscal year 2014 was primarily the result of a $ 38 million reduction in amounts owed to adt by tyco pursuant to the 2012 tax sharing agreement largely due to the resolution of certain unrecognized tax benefits . see note 6 to the consolidated financial statements for more information . income tax expense income tax expense was $ 141 million for fiscal year 2015 , compared with $ 128 million for fiscal year 2014 , and the effective tax rate increased to 32.3 % from 29.6 % . the effective tax rate for fiscal year 2014 reflects the net impact of a $ 42 million favorable adjustment resulting from the resolution of certain unrecognized tax benefits partially offset by the unfavorable deferred tax impact of $ 17 million from irs audit adjustments . additionally , the fiscal year 2014 effective tax rate reflects the unfavorable impact resulting from $ 38 million in non-deductible expense . see `` other income ( expense ) '' above .
| results of operations the following table sets forth our consolidated results of operations and key performance indicators for the periods indicated . replace_table_token_4_th ( 1 ) gross customer additions for fiscal year 2013 exclude 117 thousand customer accounts acquired in connection with the acquisition of devcon security holdings , inc. in august 2013. these accounts are included in the 6.4 million ending number of customers as of september 27 , 2013. gross customer additions for fiscal year 2014 exclude 373 thousand customer accounts acquired in connection with the acquisition of protectron in july 2014. these accounts are included in the 6.7 million ending number of customers as of september 26 , 2014 . ( 2 ) adjusted ebitda , adjusted pre-sac ebitda and fcf are non-gaap measures . refer to the `` -non-gaap measures '' section for the definitions thereof and reconciliations to the most comparable gaap measures . 37 year ended september 25 , 2015 compared with year ended september 26 , 2014 revenue the increase in consolidated revenue was attributable to the following : replace_table_token_5_th revenue by segment for fiscal year 2015 and fiscal year 2014 was as follows : replace_table_token_6_th united states the increase in united states revenue was attributable to the following : replace_table_token_7_th revenue in the united states increased as a result of growth in recurring customer revenue for our residential and business customers of $ 103 million , which was partially offset by a decrease in other revenue . recurring customer revenue increased as a result of higher average revenue per customer .
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our actual results may differ materially from those we currently anticipate as a result of many factors , including the factors we describe under “ item 1a—risk factors , ” and elsewhere in this annual report on form 10-k. this section of this form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in `` management 's discussion and analysis of financial condition and results of operations '' in part ii , item 7 of the company 's annual report on form 10-k for the year ended december 31 , 2018. overview we are a leading provider of cloud communications services for businesses and consumers . our business services transform the way people work and businesses operate through a portfolio of communications solutions that enable internal collaboration among employees , while also keeping companies closely connected with their customers , across any mode of communication , on any cloud-connected device . vonage customers can choose among or combine two separate service delivery options to suit their specific cloud communication needs . they can buy applications group solutions as a subscription and they can buy our api platform group offerings and consume our cloud communication as a service product as programmable modules , delivered via apis . we also provide a robust suite of feature-rich residential communication solutions . business for our business customers , we provide innovative , cloud-based applications , comprised of integrated voice , text , video , data , collaboration , and mobile applications over our flexible , scalable sip based voip network along with contact center solutions . we also offer api solutions designed to enhance the way businesses communicate with their customers by embedding communications into apps , websites and business processes . in combination , our products and services permit our business customers to communicate with their customers and employees through any cloud-connected device , in any place , at any time without the often costly investment required with on-site equipment . we have a robust set of product families tailored to serve the full range of the business value chain , from the smb market , through mid-market and enterprise markets . we provide customers with multiple deployment options , designed to provide the reliability and quality of service they demand . we provide customers the ability to integrate our cloud communications platform with many cloud-based productivity and crm solutions , including google 's g suite , zendesk , salesforce 's sales cloud , oracle , and clio . with our ability to integrate these cloud-based , workplace tools , vonage integrates the entire business communications value chain - from employee communications that maximize productivity to the direct engagement with customers that apis provides . when combined with our mpls network , as well as voice services over customers ' broadband networks via our smartwan solution , we create a differentiated offering . consumer for our consumer customers , we enable users to access and utilize our services and features , via their existing internet connections , including over 3g/4g , lte , cable , or dsl broadband networks . this technology enables us to offer our consumer customers attractively priced voice and messaging services and other features around the world on a variety of devices . our consumer strategy is focused on the continued penetration of our core north american markets , where we will continue to provide value in international long distance and target under-served segments . services outside of the united states we currently have applications and consumer operations in the united states , united kingdom , and canada and believe that our low-cost internet based communications platform enables us to cost effectively deliver voice and messaging services to other locations throughout the world . we also have operations in the united states , united kingdom , hong kong , and singapore , and provide applications solutions to our customers located in many countries around the world . trends in our industry a number of trends in our industry have a significant effect on our results of operations and are important to an understanding of our financial statements . 31 vonage annual report 2019 competitive landscape . the business cloud communications markets and consumer services market in which we participate are highly competitive . we face competition from a board set of companies , including ( i ) saas companies , ccaas companies , other alternative communication providers , other providers of cloud communication services and ( ii ) traditional telephone , wireless service providers , cable companies , and alternative communications providers with consumer offerings . as the cloud communications market evolves , and the convergence of voice , video , messaging , mobility and data networking technologies accelerates , we may face competition in the future from companies that do not currently compete in the market , including companies that currently compete in other sectors , companies that serve consumers rather than business customers , or companies which expand their market presence to include cloud communications . for additional information , refer to `` competition '' in part i , business . regulation . our business has developed in a relatively lightly regulated environment . for further discussion regarding regulatory issues which impacts the company , refer to `` regulation '' in note 15 , commitments and contingencies to our financial statements . key operating data the table below includes key operating data that our management uses to measure the growth and operating performance of the business segment : replace_table_token_4_th service revenues per customer . service revenues per customer for a particular period is calculated by dividing the average monthly service revenues for the period by the average number of customers over the number of months in the period . story_separator_special_tag in addition , we provide managed equipment to business customers for which the customers pay a monthly fee . customers also have the opportunity to purchase premium features for additional fees . in addition , we derive revenue from usage-based fees earned from customers using our cloud-based software products . these usage-based software products include our messaging , voice , verify and chat apis . usage-based fees include number of text messages sent or received using our messaging apis , minutes of call duration activity for our voice apis , and number of converted authentications for our verify api . services revenue is offset by the cost of certain customer acquisition activities , such as rebates and promotions . in addition , in certain instances , we charge disconnect fees which are recognized as revenue at the time the disconnect fees are collected from our customer . in the united states , we charge regulatory , compliance and intellectual property , and e-911 recovery fees on a monthly basis to defray costs , and to cover taxes that we are charged by the suppliers of telecommunications services . in addition , we recognize revenue on a gross basis for contributions to the usf and related fees . all other taxes are recorded on a net basis . 33 vonage annual report 2019 revenues are generated from sales of customer equipment directly to customers for replacement devices , or for upgrading their device at the time of customer sign-up for which we charge an additional fee . in addition , customer equipment and shipping revenues include revenues from the sale of voip telephones in order to access our small and medium business services . customer equipment and shipping revenues also include the fees that customers are charged for shipping their customer equipment to them . operating expenses operating expenses consist of cost of revenues , sales and marketing expense , engineering and development expense , general and administrative expense , and depreciation and amortization . story_separator_special_tag service gross margin percentage decreased to 53.3 % for the year december 31 , 2019 from 54.6 % for the year ended december 31 , 2018 . the decrease in business service gross margin percentage is a result of faster growth of certain lower-margin products across our business segment for the year ended december 31 , 2019 as compared to the same period in the prior year . our gross margin percentage may continue to be impacted by changes in the mix of service offerings provided to our customers across our business segment . consumer gross margin for the years ended december 31 , 2019 , 2018 , and 2017 replace_table_token_9_th ( 1 ) includes customer premise equipment , and shipping and handling . ( 2 ) excludes depreciation and amortization of $ 4,683 , $ 5,200 , and $ 7,208 , respectively . 37 vonage annual report 2019 for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 the following table describes the decrease in consumer gross margin for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 : ( in thousands ) service gross margin decreased primarily due to a decrease in subscriber lines of 16 % resulting in lower gross margin of $ 41,874 as the company is not actively pursuing expansion of the consumer customer base . this was offset by a slight increase in average revenue per customer and lower overall costs incurred by the consumer segment resulting in increased gross margin of $ 709 $ ( 41,165 ) access and product gross margin increased 20 % primarily due lower equipment costs associated with sales to customers during the current year 961 usf gross margin increased mainly due to payment during the first quarter of 2018 for usf fees not collected in 2017 26 decrease in segment gross margin $ ( 40,178 ) consumer service gross margin percentage increased to 89.8 % for the year ended december 31 , 2019 from 88.0 % for the year ended december 31 , 2018 due to lower international and domestic termination rates and the allocation of certain shared network costs to business as that revenue becomes a greater proportion of the whole . the increase in consumer service margin percentage is also driven by overall lower costs attributed to consumer services as the company shifts resources towards attracting more profitable business customers . other operating expenses the following table presents our other operating expenses during the years ended december 31 , 2019 , 2018 , and 2017 , respectively : replace_table_token_10_th for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 total other operating expenses increased by $ 101,623 during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 primarily due to the following : sales and marketing expense increased by $ 51,678 , or 17 % , primarily due to additional costs from tokbox and nvm which were acquired in august 2018 and october 2018 , respectively . additionally , sales and marketing costs were impacted by increased spending in the current year related to media marketing initiatives , expansion of the company 's sales force , hosting the company 's first ever vonage campus event in october 2019 , and the attendance at conferences such as dreamforce . engineering and development expense increased $ 17,321 or 33 % , in connection with the company 's continued transformation focused on innovation and developing further functionality related to its proprietary platform in order to support customers through the mid-market and enterprise sector . general and administrative expense increased by $ 17,348 , or 13 % , primarily due to higher personnel costs driven by the increase in headcount following the acquisition of tokbox and nvm . depreciation and amortization expense increased by $ 15,276 , or 22 % , primarily due to the amortization of acquired intangible assets related to tokbox and nvm .
| results of operations the following table sets forth , as a percentage of consolidated operating revenues , our consolidated statement of income for the periods indicated : replace_table_token_6_th management 's discussion of the results of operations for the years ended december 31 , 2019 , and 2018 , the company reported loss before income taxes of $ 26,108 and income before income taxes of $ 36,525 for the years ended december 31 , 2019 and 2018 , respectively . the decrease in ( loss ) /income before income taxes as compared to the prior year was primarily caused by higher other operating expenses of $ 101,623 primarily as a result of the acquisitions of nvm and tokbox in 2018 driven by increases in salary costs due to higher headcount , increases in sales and marketing expenses , and increases in depreciation and amortization expenses due to additional intangible assets acquired . in addition , there were increases in engineering and development expenses in connection with the company 's continued transformation focused on innovation . the company reported net loss of $ 19,482 and net income of $ 35,728 , respectively , for the years ended december 31 , 2019 and 2018 . the decrease in net ( loss ) /income for the year ended december 31 , 2019 is mainly due to the aforementioned decrease in ( loss ) /income before income taxes and the increase in income tax benefit/ ( expense ) of $ 7,423 . 34 vonage annual report 2019 we calculate gross margin as total revenues less cost of service , which primarily consists of fees that we pay to third parties on an ongoing basis in order to provide our services and costs incurred when a customer first subscribes to our service .
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contract losses for the year ended december 31 , 2016 , were primarily attributable to decreasing margins on fabrication work due to continued depressed oil and gas prices within our fabrication division and the movement of vessels in progress from our leased prospect shipyard to our owned houma shipyard within our shipyard division . contract losses for the year ended december 31 , 2015 , were primarily due to $ 24.5 million related to a decrease in the contract price due to final weight re-measurements and our inability to recover certain costs on disputed change orders related to a large deepwater project which was delivered story_separator_special_tag executive overview and summary current year losses , liquidity , industry trends , continued diversification and creation of our epc division beginning in late 2014 , a severe decline in oil and natural gas prices led to a significant decline in oil and gas industry drilling activities and capital spending from our traditional customer base . in 2015 and through 2017 , the company implemented a number of initiatives to strategically reposition the company to attract new customers , participate in the buildup of petrochemical facilities , pursue offshore wind markets and diversify our customers within our shipyard business . additionally , the company initiated efforts to preserve cash and lower costs including : reducing our workforce in certain divisions , developing a plan to sell certain underutilized assets , and diversifying our service offerings and fabrication capabilities . during the year ended december 31 , 2017 , we incurred operating losses of $ 68.4 million . operating losses totaling $ 34.5 million related to cost overruns and delays that we encountered in the newbuild construction of two multi-purpose service vessels that we are building for a customer within our shipyard division . these vessels are some of the most technologically-advanced vessels in their class . the cost overruns relate primarily to complexities with the installation of the power and communications systems . we believe the best course of action for the company is to perform additional engineering and construction planning to ensure we are meeting the contractual performance requirements for these vessels and mitigating any further construction risk . with the additional electrical engineering , planning and construction estimates , the estimated delivery dates of the vessels will be extended beyond the contractual delivery dates , and we estimate that the maximum amount of liquidated damages of $ 11.2 million will be incurred in the absence of a signed amendment with the customer . we have included the maximum liquidated damages in our 2017 loss provision above and reduced our estimate of the contract price . we continue to work with the customer to complete the contract in a manner that is acceptable to both parties ; however , resolution with this customer could take several months . we can provide no assurance that we will be successful in signing an amendment to the contract , or that in the event we are successful in negotiating an amendment , as to when such an amendment will be signed or if such amendment will result in recovery of any cost overruns or liquidated damages that we have recognized to date . we believe that our estimates to complete the vessels are reasonable ; however , we can not guarantee that we will not incur additional costs as we negotiate with our customer . additional operating losses during the year related to ( i ) non-cash impairments totaling $ 7.7 million and ( ii ) costs related to holding our south texas properties while they are held for sale were $ 5.5 million . the remaining $ 20 million losses primarily relate to the competitive environment of our industry and the challenged oil and gas industry . our immediate liquidity remains dependent on our cash on hand , availability of future drawings from our $ 40 million credit agreement and collections of accounts receivable . in the first quarter of 2018 , we drew $ 10 million under our credit agreement and as of march 9 , 2018 , we had approximately $ 10 million in cash with approximately $ 27.5 million in availability under our credit agreement . we are implementing several strategies to diversify the business , increase backlog , reduce operating expenses and monetize assets . our south texas properties , with a combined net book value of $ 102.7 million , are held for sale . oil and gas prices have seen improvements ; however , our industry conditions remain challenged . our customers in the global oil and gas industry continue to limit their capital spending , which has also negatively impacted the marine and offshore service industries that support offshore exploration and production and adversely affected our ability to operate our facilities at desired utilization levels . as a result , we have experienced significant decreases in revenue and tighter margins on awarded new work . offshore oil and gas producers are not expected to increase drilling activity in the near term and we do not anticipate any significant near term movement as it relates to offshore investment and related project activity as producers focus on land-based oil and gas production through newly discovered shale plays . accordingly , we are focused on projects outside of the upstream oil and gas sector . within our fabrication division , we have increased our business development focus on petrochemical plant module work , alternative energy fabrication projects and other projects that are less susceptible to fluctuations in oil and gas prices and may actually benefit in the longer-term from reliable , lower cost commodity prices . we are currently fabricating complex modules for the construction of a new ethane cracker petrochemical plant and we expect to perform a portion of the significant fabrication work under the seaone project if it proceeds . opportunities for our shipyard division remain largely outside of the oil and gas sector including some government contracts . story_separator_special_tag we have ceased all fabrication activities at these locations and re-allocated any remaining backlog and workforce to our houma fabrication operations as necessary . as a result of the decision to place our south texas properties for sale and the underutilization currently being experienced , we expect to incur costs associated with the maintaining of the facility through its sale that will not be recoverable . these costs during 2017 were $ 5.5 million and included insurance , general maintenance of the property in its current state and property taxes . on august 25 , 2017 , our south texas properties were impacted by hurricane harvey , which made landfall as a category 4 hurricane . as a result , we suffered damages to our buildings and equipment at our south texas properties . our initial estimate of the total claim due to the company approximates $ 21.5 million ; however , our insurance carrier has not approved these amounts . we maintain coverage on these assets up to a maximum of $ 25.0 million , subject to a 3.0 % deductible with a minimum deductible of $ 500,000 . through december 31 , 2017 , we have incurred approximately $ 1.3 million in clean-up , inspection and repair related costs . one building at our south yard and one building at our north yard were determined to be total losses . as a result we expensed the remaining net book value of $ 1.5 million related to these buildings and recorded a corresponding insurance recovery of $ 1.5 million fully offsetting the loss . we are working diligently with our insurance agents and adjusters to finalize our estimate of the damage ; however , it may be several months , or even longer , before we can finalize our assessment and receive final payment from our insurance underwriters . our insurance underwriters have made an initial payment of $ 6.0 million , and we have recorded a liability for future repairs of $ 3.3 million which is included in accrued expenses and other liabilities on our balance sheet at december 31 , 2017 . based upon our initial assessment of the damages and insurance coverage , management believes that there is no basis to record a net loss at this time and that insurance proceeds will at a minimum be sufficient to reimburse us for all damages and repair costs . our final assessment of the loss incurred to our south texas properties as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled and such differences could be material . on december 20 , 2017 , we granted an exclusive option to a third party for the purchase of our south yard for a purchase price of $ 55 million . this option runs through april 25 , 2018 , which may be extended through may 25 , 2018 , if proper written notice and additional earnest monies are provided in accordance with the agreement . the terms of the agreement are subject to normal and customary conditions , including the third party 's right to conduct inspections of the property related to confirmation of title , surveys , environmental conditions , easements and access rights . in consideration for the option to purchase the south yard , the third party deposited $ 750,000 of earnest money on january 3 , 2018 , which is nonrefundable in the event the third party cancels the agreement . we expect to use all or a portion of the sales proceeds to invest in our operating liquidity in order to facilitate anticipated future projects including the seaone project , selected capital improvements to enhance and or expand our existing facilities , and to expand our product and service capabilities . we are continuing this effort to identify and analyze specific investment opportunities we believe will enhance the long-term value of the company that are consistent with our strategy . recent developments during january 2018 , we drew $ 10 million under our credit agreement . on february 26 , 2018 , the company entered into a second amendment ( the `` second amendment '' ) to the credit agreement with a lending institution as sole lender , dated june 9 , 2017. the second amendment lowers the base tangible net worth covenant requirement from $ 200 million to $ 185 million . in addition , the second amendment revises the calculation for the minimum tangible net worth covenant to include 50 % of any gain attributable to the sale of our south texas properties . backlog our backlog is based on management 's estimate of the direct labor hours required to complete , and the remaining revenue to be recognized with respect to those projects a customer has authorized us to begin work or purchase materials or services pursuant to written contracts , letters of intent or other forms of authorization . as engineering and design plans are finalized or changes to existing plans are made , management 's estimate of the direct labor hours required to complete a project and the price of a project at completion is likely to change . 26 all projects currently included in our backlog generally are subject to suspension , termination , or a reduction in scope at the option of the customer , although the customer is typically required to pay us for work performed and materials purchased through the date of termination , suspension , or reduction in scope . in addition , customers have the ability to delay the execution of projects . a comparison of our backlog as of december 31 , 2017 , september 30 , 2017 , and as of december 31 , 2016 , is as follows ( amounts in thousands , except for percentages ) : replace_table_token_4_th 1 ) backlog as of december 31 , 2017 , includes commitments received through february 22 , 2018 .
| results of operations 2017 loss provision - during 2017 , we recorded contract losses totaling $ 34.5 million related to cost overruns and delays that we encountered in the newbuild construction of two multi-purpose service vessels that we are building for a customer within our shipyard division . the cost overruns were due to engineering and electrical complexities with the power and communications systems . we believe the best course of action for the company is to perform additional engineering and construction planning to ensure we are meeting the contractual performance requirements for these vessels and mitigating any further construction risk . with the additional electrical engineering , planning and construction estimates , the estimated delivery dates of the vessels will be extended beyond the contractual delivery dates , and we estimate that the maximum amount of liquidated damages of $ 11.2 million will be incurred in the absence of a signed amendment with the customer . we have included the maximum liquidated damages in our 2017 loss provision above and reduced our estimate of the contract price . we continue to work with the customer to complete the contract in a manner that is acceptable to both parties ; however , resolution with this customer could take several months . we can provide no assurance that we will be successful in signing an amendment to the contract , or that in the event we are successful in negotiating an amendment , as to when such an amendment will be signed or if such amendment will result in recovery of any cost overruns or liquidated damages that we have recognized to date .
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interest expense on the oxford loan and the hercules loan including the accretion of story_separator_special_tag the following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of , and should be read in conjunction with , part i , item 1 , `` business '' and item 8 , `` financial statements and supplementary data . '' for information on risks and uncertainties related to our business that may make past performance not indicative of future results or cause actual results to differ materially from any forward-looking statements , see `` special note regarding forward-looking statements , '' and part i , item 1a , `` risk factors . '' dollars in tabular format are presented in thousands , except per share data , or as otherwise indicated . overview we are a forward-thinking women 's healthcare company dedicated to fulfilling the unmet health needs of today 's women . twirla and our other current potential product candidates are designed to provide women with contraceptive options that offer greater convenience and facilitate compliance . our lead product candidate , twirla® , also known as ag200-15 , is a once-weekly prescription contraceptive patch that is at the end of phase 3 clinical development . since our inception in 1997 , we have devoted substantial resources to developing twirla , building our intellectual property portfolio , business planning , raising capital and providing general and administrative support for these operations . we incurred research and development expenses of $ 14.4 million , $ 20.9 million and $ 25.6 million during the years ended december 31 , 2017 , 2016 and 2015 , respectively . we anticipate that a portion of our operating expenses will continue to be related to research and development as we continue to develop twirla and advance our pipeline of potential product candidates . substantially all of our resources are currently dedicated to developing and seeking regulatory approval for twirla . we will require additional capital to fund our operating needs beyond 2018 including , among other items , the resumption and completion of our commercial plan for twirla , which primarily includes the validation of our manufacturing process and the commercial launch of twirla , if approved , and advancing the development of our other potential product candidates . we have funded our operations primarily through sales of common stock , convertible preferred stock , convertible promissory notes and term loans . as of december 31 , 2017 , and 2016 , respectively , we had $ 35.9 million and $ 48.8 million in cash and cash equivalents . in may 2014 , we completed our initial public offering whereby we sold 9,166,667 shares of common stock , at a public offering price of $ 6.00 per share , before underwriting discounts and expenses . the aggregate net proceeds received by us from the initial public offering were approximately $ 49.7 million . in january 2015 , we completed a private placement of approximately 3.4 million shares of common stock at $ 5.85 per share . proceeds from the private placement , net of commissions and other offering costs were approximately $ 19.3 million . in february 2015 , we entered into a loan and security agreement with hercules technology growth capital , inc. or hercules , for a term loan of up to $ 25.0 million , which we refer to as the hercules loan agreement . a first tranche of $ 16.5 million was funded upon execution of the hercules loan agreement , approximately $ 15.5 million of which was used to repay our existing term loan . the hercules loan agreement was amended in august 2016 to , among other things , extend the period during which we could have drawn the additional tranche of $ 8.5 million to march 31 , 2017 and extended the period during which we make interest-only payments until january 31 , 2017. the hercules loan agreement was further amended in may 2017 to extend the period during which we could have drawn the additional tranche of $ 8.5 million to january 31 , 2018. we are currently in discussions with hercules to extend the period during which the additional tranche of $ 8.5 million may be drawn . we can make no assurances that our discussions will ultimately be successful and , if such discussions result 119 in an extension of the periods in which we may draw the additional tranche of $ 8.5 million , we could incur additional fees to hercules . on february 1 , 2017 , we began making principal payments with respect to the hercules loan . see further discussion in `` funding requirements and other liquidity matters '' below . in january 2016 , we closed an underwritten public offering of 5,511,812 shares of common stock at a public offering price of $ 6.35 per share . in february 2016 , the underwriters of the public offering of common stock exercised in full their option to purchase an additional 826,771 shares of common stock at the public offering price of $ 6.35 per share , less underwriting discounts and commissions . a total of 6,338,583 shares of common stock were sold in the public offering , resulting in total net proceeds of approximately $ 37.5 million . in august 2017 , we completed an underwritten public offering of 5,333,334 shares of common stock at a public offering price of $ 3.75 per share . proceeds from our august 2017 public offering , net of underwriting discounts , commissions and other offering costs were approximately $ 18.5 million . on december 21 , 2017 , the fda issued a complete response letter , or the 2017 crl , indicating that our resubmitted nda for twirla could not be approved in its present form . the 2017 crl identifies deficiencies relating to quality control adhesion test methods and specification which are part of the manufacturing process for twirla . story_separator_special_tag financial operations overview revenue to date , we have not generated any revenue . in the future , we may generate revenue from product sales , license fees , milestone payments and royalties from the sale of products developed using our intellectual property . our ability to generate revenue and become profitable depends on our ability to successfully commercialize twirla and any product candidates that we may advance in the future . if we fail to complete the development of twirla or any other potential product candidates we advance in a timely manner or obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , will be adversely affected . research and development expenses since our inception , we have focused our resources on our research and development activities . research and development expenses consist primarily of costs incurred for the development of twirla and other current and future potential product candidates , and include : expenses incurred under agreements with contract research organizations , or cros , and investigative sites that conduct our clinical trials and preclinical studies ; employee-related expenses , including salaries , benefits , travel and stock-based compensation expenses ; 121 the cost of acquiring , developing and manufacturing clinical trial materials , including the supply of our product candidates ; costs associated with research , development and regulatory activities ; and costs associated with equipment scale-up required for commercial production . research and development costs are expensed as incurred . costs for certain development activities , such as clinical trials , are recognized based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information provided to us by our third-party vendors . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis , as the majority of our past and planned expenses have been and will be in support of twirla . in 2018 , we expect our research and development expenses to remain relatively consistent with 2017 expenses . research and development expenses in 2018 will consist primarily of those costs associated with the continued development and refinement of our commercial manufacturing process , preparation and resubmission of the nda for twirla , and responding to information requests expected to be received from the fda as part of their review of our nda resubmission . in response to the 2017 crl , we have significantly scaled back equipment qualification and validation of our commercial manufacturing process and resumption and completion of these activities will require additional capital . to date , our research and development expenses have related primarily to the development of twirla . we expect research and development expenses in 2018 to focus on preparing the resubmission of our new drug application , or nda , and also toward the qualification and validation of our commercial manufacturing process . for the years ended december 31 , 2017 , 2016 and 2015 , our research and development expenses were approximately $ 14.4 million , $ 20.9 million and $ 25.6 million , respectively . the following table summarizes our research and development expenses by functional area . replace_table_token_9_th it is difficult to determine with any certainty the exact duration and completion costs of any of our future clinical trials of twirla or our other current and future potential product candidates we may advance . it is also difficult to determine if , when or to what extent we will generate revenue from the commercialization and sale of our product candidates that obtain regulatory approval . consistent with our previous nda resubmission in 2017 , we currently expect that our resubmission of the nda responding to the 2017 crl will be categorized as a type 2 resubmission and receive a review period of six months from the date of resubmission of the nda . we may , however , never succeed in achieving regulatory approval for twirla or any of our other potential product candidates or such approval may be delayed . the duration , costs and timing of clinical trials and development of our 122 other potential product candidates in addition to twirla will depend on a variety of factors , including the uncertainties of future clinical trials and preclinical studies , the rate of subject enrollment , obtaining additional capital , and significant and changing government regulation . in addition , the probability of success for each product candidate will depend on numerous factors , including competition , manufacturing capability and commercial viability . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda , or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials , or experience issues with our manufacturing capabilities we could be required to expend significant additional financial resources and time with respect to the development of that product candidate . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate , as well as an assessment of each product candidate 's commercial potential . substantially all of our resources are currently dedicated to developing and seeking regulatory approval for twirla .
| general and administrative expenses . general and administrative expenses increased by $ 3.6 million , or 41 % , from $ 8.8 million for the year ended december 31 , 2016 to $ 12.4 million for the year ended december 31 , 2017. this increase in general and administrative expense was primarily due to the following : an increase in commercial development expense of $ 3.3 million for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016. this increase relates to the initiation of certain pre-commercialization activities such as brand building , advocacy and consulting . we have significantly scaled back our preparation for the commercialization of twirla in order to preserve cash . interest income . interest income comprises interest income earned on cash and cash equivalents . interest expense . interest expense is primarily attributable to our term loan with hercules for the years ended december 31 , 2017 and 2016. interest expense also includes the amortization of the discount associated with allocating value to the common stock warrants issued to hercules , the amortization of the deferred financing costs associated with the term loans and the accrual of the final payment due to hercules . interest expense decreased by $ 0.5 million , or 22 % from $ 2.4 million for the year ended december 31 , 2016 to $ 1.9 million for the year ended december 31 , 2017. this decrease is primarily the result of a decrease in the principal outstanding under our term loan with hercules for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016. change in fair value of warrants .
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the consolidated financial statements include the accounts of the company and galectin therapeutics security corp. , its wholly-owned subsidiary , which was incorporated in delaware on december story_separator_special_tag overview we are a development-stage company engaged in drug research and development to create new therapies for fibrotic disease and cancer . our drug candidates are based on our method of targeting galectin proteins , which are key mediators of biologic and pathologic functions . we use naturally occurring , readily-available plant materials as starting material in manufacturing processes to create proprietary complex carbohydrates with specific molecular weights and other pharmaceutical properties . these complex carbohydrate molecules are appropriately 24 index to financial statements formulated into acceptable pharmaceutical formulations . using these unique carbohydrate-based candidate compounds that bind and inhibit galectin proteins , we are undertaking the focused pursuit of therapies for indications where galectins have a demonstrated role in the pathogenesis of a given disease . we focus on diseases with serious , life-threatening consequences to patients and those where current treatment options are limited . our strategy is to establish and implement clinical development programs that add value to our business in the shortest period of time possible and to seek strategic partners when a program becomes advanced and requires additional resources . we endeavor to leverage our scientific and product development expertise as well as established relationships with outside sources to achieve cost-effective and efficient development . these outside sources , amongst others , provide us with expertise in preclinical models , pharmaceutical development , toxicology , clinical development , pharmaceutical manufacturing , sophisticated physical and chemical characterization , and commercial development . we also have established a collaborative scientific discovery program with leading experts in carbohydrate chemistry and characterization . this discovery program is aimed at the targeted development of new molecules which bind galectin proteins and offer alternative options to larger market segments in our primary disease targets . we are pursuing a development pathway to clinical enhancement and commercialization for our lead compounds in liver fibrosis and fatty liver disease as well as in immune enhancement for cancer therapy . all of our proposed products are presently in development , including pre-clinical and clinical trials . 2012 common stock and warrant offering with reverse split and 2013 at market issuance agreement on march 22 , 2012 , in anticipation of completing a public offering of securities , we effected a one-for-six reverse stock split of our common stock . all common share and per unit amounts in this report , including the financial statements , have been adjusted to reflect the reverse split . our common stock began trading on the nasdaq capital market under the symbol galt on march 23 , 2012 , and the units and warrants that we sold in the offering began trading on that exchange under the symbols galtu and galtw , respectively , on march 28 , 2012. on march 28 , 2012 , we completed the public offering in which we issued 2,666,722 shares of common stock and related warrants exercisable until march 28 , 2017 , at $ 5.63 per share to purchase 1,333,361 shares of common stock for gross proceeds of $ 12.0 million ( net cash proceeds of 10.4 million ) . on october 25 , 2013 , the company entered into an at market issuance sales agreement ( the at market agreement ) under which the company could issue and sell shares of its common stock having an aggregate offering price of up to $ 30.0 million from time to time . as of december 31 , 2013 , the company had issued 99,942 shares of its common stock through its at market issuance program resulting in gross proceeds of approximately $ 944,000. in january and february 2014 , the company issued 2,663,647 shares of common stock for gross proceeds of approximately $ 29,051,000 which completed the at market agreement . our drug development programs galectins are a class of proteins that are made by many cells in the body . as a group , these proteins are able to bind to sugar molecules that are part of other proteins in and on the cells of our body . galectin proteins act as a kind of glue , bringing together molecules that have sugars on them . galectin proteins are known to be markedly increased in a number of important diseases including scaring of organs ( e.g . liver , lung , kidney , and heart ) and cancers of many kinds . the increase in galectin protein promotes the disease and is detrimental to the patient . we have two compounds in development that are intended to be used in the treatment of liver fibrosis and fatty liver disease and in cancer therapy . these two compounds are produced from completely different , natural , readily available , starting materials , which , following chemical processing , both exhibit the property of binding to and inhibiting galectin proteins . gr-md-02 , our lead product for treatment of liver fibrosis and fatty liver 25 index to financial statements disease with inflammation and fibrosis and in cancer therapy , is a proprietary complex polysaccharide polymer possessing both linear and globular structures , which is derived from a plant source . gm-ct-01 is a proprietary linear polysaccharide polymer comprised of mannose and galactose that has a precisely defined chemical structure and which is also derived from a plant source . we believe the mechanism of action for gr-md-02 and gm-ct-01 is based upon interaction with , and inhibition of , galectin proteins , which are expressed at high levels in certain pathological states including inflammation , fibrosis and cancer . while gr-md-02 and gm-ct-01 are capable of binding to multiple galectin proteins , we believe that they have the greatest affinity for galectin-3 , the most prominent galectin implicated in pathological processes . blocking galectin in cancer and liver fibrosis has specific salutary effects on the disease process , as discussed below . story_separator_special_tag preclinical studies have indicated that gr-md-02 and gm-ct-01 enhance the immune response to and more specifically increased tumor shrinkage and enhanced survival in immune competent mice with prostate and breast cancers when combined with one of the immune checkpoint inhibitors , anti-ctla-4 or anti-pd-1 . these preclinical data have led to the filing of an investigator-sponsored ind and the initiation of a study of gr-md-02 in combination with yervoy ® ( ipilimumab ) in a phase 1b study of patients with metastatic melanoma . this study is being conducted under the sponsorship of providence portland medical center 's earle a. chiles research institute ( eacri ) . we previously attempted to gain regulatory approval of gm-ct-01 for use in combination with 5-fu ( 5-fluorouracil , an anti-cancer chemotherapy drug ) containing chemotherapy regiments for metastatic colorectal cancer in colombia . this approach had been recommended to the company by key oncology opinion leaders in colombia and by procaps s.a. ( procaps ) , a colombia-based pharmaceutical company . there has been no approval of gm-ct-01 in a major region such as the u.s. or europe and it was determined that approval from the regulatory authority in columbia ( invima ) would require additional clinical trial data . although the company worked with procaps to design a phase 3 clinical trial , a satisfactory plan could not be agreed upon and we terminated the agreement with procaps ( as described below ) , effective september 29 , 2012 , and have no current plans to continue attempts to gain approval of gm-ct-01 in columbia . we had not taken into account projections for any potential revenues from this agreement in our financing plans . agreement with procaps s.a. on march 25 , 2010 , we granted procaps s.a. ( in the form of a definitive term sheet ) exclusive rights to market and sell gm-ct-01 to treat cancer in colombia , south america . procaps is an international , privately held pharmaceutical company based in barranquilla , colombia . in october 2010 , we received a payment of $ 200,000 and shipped gm-ct-01 to procaps to be used by procaps to undertake initial steps contemplated by the term sheet . we recorded the $ 200,000 payment from procaps as deferred revenue on the consolidated balance sheet as of december 31 , 2011 , to be recognized when the remaining deliverables of the agreement were completed . on october 18 , 2011 , we entered into a collaboration , supply , marketing and distribution agreement ( the agreement ) with procaps . the agreement granted procaps first negotiation rights to enter into similar 27 index to financial statements agreements in other central and south american countries . we were to be the sole manufacturer and supplier of gm-ct-01 to procaps . the agreement obligated procaps to procure regulatory approvals necessary for the marketing and sale of gm-ct-01 naming us as the owner of such approvals to the extent permitted by law , or alternatively hold the approvals for our benefit . procaps was required to pay us a stated fee for each dose it purchases and royalties at an incremental rate determined by annual net sales of gm-ct-01 . we retained all intellectual property rights to gm-ct-01 and related products and procaps may not produce , modify , reverse engineer , or otherwise interfere with the gm-ct-01 compound . procaps may not manufacture or sell products that compete with gm-ct-01 during the term of the agreement and for five years thereafter . procaps had not obtained approval to sell gm-ct-01 in columbia as required by the agreement and , as they were in material breach of the agreement , we terminated the agreement , effective september 29 , 2012. with no further obligations under the agreement , we recognized the $ 200,000 payment as other income in the statement of operations during the year ended december 31 , 2012. results of operations from the years ended december 31 , 2013 and 2012 research and development expense replace_table_token_2_th we generally categorize research and development expenses as either direct external expenses , comprised of amounts paid to third party vendors for services , or all other research and development expenses , comprised of employee payroll and general overhead allocable to research and development . we consider a clinical program to have begun upon acceptance by the fda , or similar agency outside of the united states , to commence a clinical trial in humans , at which time we begin tracking expenditures by the product candidate . clinical program expenses comprise payments to vendors related to preparation for , and conduct of , all phases of the clinical trial , including costs for drug manufacture , patient dosing and monitoring , data collection and management , oversight of the trials and reports of results . pre-clinical expenses comprise all research and development amounts incurred before human trials begin , including payments to vendors for services related to product experiments and discovery , toxicology , pharmacology , metabolism and efficacy studies , as well as manufacturing process development for a drug candidate . we have two product candidates , gr-md-02 and gm-ct-01 . we filed for an ind for gr-md-02 in january 2013 and in february 2013 we entered into an agreement with cti to conduct a phase 1 clinical trial of gr-md-02 . in march 2013 , the fda indicated we could proceed with a phase 1 human clinical trial of gr-md-02 , and we began enrolling patients in the third quarter of 2013. in january 2014 , we completed the enrollment of the first cohort of patients in the phase 1 trial with no serious adverse events being reported .
| general and administrative expense replace_table_token_4_th general and administrative expenses consist primarily of salaries including stock based compensation , legal and accounting fees , insurance , investor relations , business development and other office related expenses . the primary reasons for the increase for the year ended december 31 , 2013 as compared to the same period for 2012 are due to increased stock-based compensation of $ 928,000 , increased legal expenses of $ 49,000 related to our ongoing litigation with dr. platt , increased insurance expense of $ 92,000 and increased investor relations expense of $ 66,000 , offset by decreased rent expense of $ 177,000. the primary reason for the increase in stock-based compensation for the year ended december 31 , 2013 was due to a modification in september 2013 of certain vested options held by a former board member to extend the contractual exercise period through the original expiration dates as opposed to 90 days after service on the board ended . 29 index to financial statements other income and expense during the year ended december 31 , 2012 , other income and expense consisted primarily of the $ 200,000 payment from procaps which was previously accounted for as deferred income and recognized upon the termination of the procaps agreement , as previously described . liquidity and capital resources as described above in the overview and elsewhere in this annual report on form 10-k , we are in the development stage and have not generated any revenues to date . since our inception on july 10 , 2000 , we have financed our operations from proceeds of public and private offerings of debt and equity . as of december 31 , 2013 , we raised a net total of $ 77.4 million from these offerings . at december 31 , 2013 , the company had $ 10,489,000 of unrestricted cash and cash equivalents available to fund future operations .
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we are a clinical-stage biotechnology company developing therapeutics that are designed to target the biological processes that lie at the heart of fibrosis and impact a broad range of fibrotic and related diseases , including cancer . our initial focus is on the development of small-molecule inhibitors of galectin-3 and lysyl oxidase-like 2 , or loxl2 , which play key roles in regulating fibrosis . we believe our product candidates are distinct from the current generation of antifibrotic agents and have the potential to significantly improve patients ' clinical outcomes and enhance their quality of life . our lead product candidate is in phase 2b clinical development and our other product candidates and research initiatives are in early stages of clinical and preclinical development . our ability to generate revenue from product sales sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates . our operations to date have been financed primarily from our initial public offering , or ipo , the issuance of convertible preferred shares and convertible notes . since inception , we have had significant operating losses . our net loss was $ 34.8million and $ 36.5 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 104.4 million and $ 163.6 million in cash and cash equivalents . galecto , inc. was incorporated in delaware in october 2019. shares in galecto biotech ab , a swedish operating company , were exchanged at a one-to-one ratio for shares in galecto , inc. in a common control/tax-free reorganization . on december 31 , 2019 , galecto , inc. and pharmakea inc. , or pharmakea , consummated the purchase agreement , whereby galecto , inc. acquired pharmakea in principally an all-stock transaction . as of december 31 , 2020 , the company 's wholly owned subsidiaries were pharmakea , galecto securities corporation and galecto biotech ab . galecto aps , a danish operating company , was galecto biotech ab 's wholly owned subsidiary . the consolidated statements of operations and comprehensive loss , convertible preferred shares and stockholders ' deficit and cash flows for the year ended december 31 , 2020 are that of galecto , inc. and for the year ended december 31 , 2019 are that of galecto biotech ab . cash used to fund operating expenses is impacted by the timing of when we pay these expenses , as reflected in the change in our accounts payable and accrued expenses . we expect to continue to incur net losses for the foreseeable future , and we expect our research and development expenses , general and administrative expenses , and capital expenditures will continue to increase . in particular , we expect our expenses to increase as we continue our development of , and seek regulatory approvals for , our product candidates , as well as hire additional personnel , pay fees to outside consultants , lawyers and accountants , and incur other increased costs associated with being a public company . in addition , if and when we seek and obtain regulatory approval to commercialize any product candidate , we will also incur increased expenses in connection with commercialization and marketing of any such product . our net losses may fluctuate significantly from quarter-to-quarter and year-to-year , depending on the timing of our clinical trials and our expenditures on other research and development activities . based upon our current operating plan , we believe that our existing cash and cash equivalents of $ 163.6 million as of december 31 , 2020 , will be sufficient to continue funding our development activities into 2024. we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . to finance our operations beyond that point we will need to raise additional capital , which can not be assured . to date , we have not had any products approved for sale and , therefore , have not generated any product revenue . we do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates . if we obtain regulatory approval for any of our product candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . as a result , until such time , if ever , that we can generate substantial product revenue , we expect to finance our cash needs through equity offerings , debt financings or other capital sources , including collaborations , licenses or similar arrangements . however , we may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms , if at all . any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies , including our research and development activities . if we are unable to raise capital , we will need to delay , reduce or terminate planned activities to reduce costs . the covid-19 pandemic , which began in december 2019 and has spread worldwide , has caused many governments to implement measures to slow the spread of the outbreak through quarantines , travel restrictions , heightened border scrutiny and other measures . the outbreak and government measures taken in response have also had a significant impact , both directly and indirectly , on businesses and commerce , as worker shortages have occurred ; supply chains have been disrupted ; facilities and production have been suspended ; and demand for certain goods and services , such as medical services and supplies , has spiked , while demand for other goods and services , such as travel , has fallen . story_separator_special_tag candidates ; expansion and maintenance of a workforce of experienced scientists and others to continue to develop our product candidates ; successful application for and receipt of marketing approvals from applicable regulatory authorities ; obtainment and maintenance of intellectual property protection and regulatory exclusivity for our product candidates ; arrangements with third-party manufacturers for , or establishment of , commercial manufacturing capabilities ; establishment of sales , marketing and distribution capabilities and successful launch of commercial sales of our products , if and when approved , whether alone or in collaboration with others ; acceptance of our products , if and when approved , by patients , the medical community and third-party payors ; effective competition with other therapies ; obtainment and maintenance of coverage , adequate pricing and adequate reimbursement from third-party payors , including government payors ; maintenance , enforcement , defense and protection of our rights in our intellectual property portfolio ; avoidance of infringement , misappropriation or other violations with respect to others ' intellectual property or proprietary rights ; and maintenance of a continued acceptable safety profile of our products following receipt of any marketing approvals . we may never succeed in achieving regulatory approval for any of our product candidates . we may obtain unexpected results from our preclinical studies and clinical trials . we may elect to discontinue , delay or modify clinical trials of some product candidates or focus on others . a change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be 97 required for the completion of clinical development , or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials , we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development . research and development activities account for a significant portion of our operating expenses . we expect our research and development expenses to increase for the foreseeable future as we continue to implement our business strategy , which includes advancing gb0139 through clinical development and other product candidates further into clinical development , expanding our research and development efforts , including hiring additional personnel to support our research and development efforts , and seeking regulatory approvals for our product candidates that successfully complete clinical trials . in addition , product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . as a result , we expect our research and development expenses to increase as our product candidates advance into later stages of clinical development . however , we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our product candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . general and administrative expenses our general and administrative expenses consist primarily of personnel costs , depreciation expense and other expenses for outside professional services , including legal , human resources , audit and accounting services and facility-related fees not otherwise included in research and development expenses . personnel costs consist of salaries , benefits and equity-based compensation expense , for our personnel in executive , finance and accounting , business operations and other administrative functions . we expect our general and administrative expenses to increase over the next several years to support our continued research and development activities , manufacturing activities , increased costs of expanding our operations and operating as a public company . these increases will likely include increases related to the hiring of additional personnel and legal , regulatory and other fees and services associated with maintaining compliance with nasdaq listing rules and sec requirements , director and officer insurance premiums and investor relations costs associated with being a public company . other income ( expense ) , net our other income ( expense ) , net is comprised of : foreign exchange : the functional currency of our subsidiaries in denmark and sweden is the euro . transactions denominated in currencies other than the euro result in exchange gains and losses that are recorded in our statements of operations . fair value adjustment on derivative and tranche obligations : we have recorded tranche obligations with respect to milestone closings of our sale and issuance of series c-2 preferred stock in october 2018. the milestone closings of the series c preferred stock were committed to in december 2019 with the series c preferred stock and proceeds received in january 2020 . 98 story_separator_special_tag ses . cash flows the following table summarizes our cash flows for the periods indicated : replace_table_token_5_th net cash used in operating activities cash used in operating activities of $ 38.2 million during the year ended december 31 , 2020 was attributable to our net loss of $ 34.8 million together with a net decrease of $ 4.6 million in our working capital , offset by an increase of $ 0.2 million in non-cash amortization of right of use lease asset and accretion of the lease liability and $ 1.0 million in non-cash stock-based compensation . cash used in operating activities of $ 19.3 million during the year ended december 31 , 2019 was attributable to our net loss of $ 36.5 million together with non-cash items of $ 1.8 million principally with respect to fair value adjustments on our tranche obligations , offset by purchased in-process research and development of $ 16.8 million and a net increase of $ 2.2 million in our working capital .
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following sets forth our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_3_th research and development expenses research and development expenses were comprised of : replace_table_token_4_th research and development expenses were $ 24.6 million for the year ended december 31 , 2020 , compared to $ 19.7 million for the year ended december 31 , 2019. the increase of $ 4.9 million was primarily related to an increase in chemistry , manufacturing and control , or cmc activities of $ 5.0 million and clinical consulting expenses of $ 2.0 million related to our phase 2b study of gb0139 and preparations for a phase 2a study of gb1211 , as well as an increase in personnel costs of $ 1.6 million . the increase was partially offset by lower clinical expenses of $ 3.7 million primarily due to fewer pre-clinical activities in 2020 as compared to 2019 , as well as clinical trial start-up costs incurred in 2019 that were not present in 2020. purchased in-process research and development expense purchased in-process research and development expense for the year ended december 31 , 2019 relates to our gb2064 program , which we acquired from pharmakea on december 31 , 2019. there were no purchased in-process research and development expenses incurred for the year-ended december 31 , 2020. general and administrative expenses general and administrative expenses were $ 9.0 million for the year ended december 31 , 2020 , compared to $ 2.4 million for the year ended december 31 , 2019. the increase of $ 6.6 million was primarily related to an increase in costs indirectly related to our ipo such as consultant costs of $ 1.6 million and accounting fees of $ 2.0 million and an increase in personnel costs of $ 1.5 million as we build our in-house staff , public company costs
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because the obligated amount under these agreements is not explicitly stated , the overall maximum amount of the obligations can not be reasonably estimated . no liabilities have been recorded for these obligations on our consolidated balance sheets as of december 31 , 2011 or 2010. indemnification of underwriters and initial purchasers of our securities in connection with our sale of equity and convertible debt securities , we have agreed to defend , indemnify and hold harmless our underwriters or initial purchasers , as applicable , as well as certain related parties from story_separator_special_tag overview strategic direction of our business we are a clinical-stage biopharmaceutical company developing a pipeline of drug candidates that utilize our pegylation and advanced polymer conjugate technology platforms , which are designed to improve the benefits of drugs for patients . our current proprietary pipeline is comprised of drug candidates across a number of therapeutic areas including oncology , pain , anti-infectives , anti-viral and immunology . our research and development activities involve small molecule drugs , peptides and other potential biologic drug candidates . we create our innovative drug candidates by using our proprietary advanced polymer conjugate technologies and expertise to modify the chemical structure of drugs to create new molecular entities . polymer chemistry is a science focused on the synthesis or bonding of polymer architectures with drug molecules to alter the properties of a molecule when it is bonded with polymers . additionally , we may utilize established pharmacologic targets to engineer a new drug candidate relying on a combination of the known properties of these targets and our proprietary polymer chemistry technology and expertise . our drug candidates are designed to improve the pharmacokinetics , pharmacodynamics , half-life , bioavailability , metabolism or distribution of drugs and improve the overall benefits and use of a drug for the patient . our objective is to apply our advanced polymer conjugate technology platform to create new drug candidates in multiple therapeutic areas that address large potential markets . our most advanced proprietary product candidate , nktr-118 , is a peripheral opioid antagonist that is currently being evaluated for the treatment of opioid-induced constipation . we are a party to an exclusive worldwide license agreement with astrazeneca for the global development and commercialization of nktr-118 and nktr-119 . nktr-119 is an early stage research and development program that is designed to combine various opioids with nktr-118 . on march 15 , 2011 , astrazeneca announced enrollment of the first patient in phase 3 clinical studies for nktr-118 that astrazeneca calls the kodiac study . this phase 3 clinical program is designed to investigate the safety and efficacy of nktr-118 as a medicine to relieve opioid-induced constipation , a common side effect of prescription opioids when used for chronic pain management . the outcome of the kodiac study will have a substantial impact on our financial condition as we are entitled to $ 235.0 million in regulatory filing and commercial launch milestones . if the kodiac study is successful and astrazeneca files for regulatory approval with the fda and the european medicines agency ( ema ) , nektar will be entitled to $ 95.0 million of these milestones . we will be entitled to the remaining $ 140.0 million of these milestones if nktr-118 is approved by the fda and ema and commercial launch is achieved in the u.s. and one major country in the european union ( eu ) . following the commercial launch of nktr-118 , we are entitled to significant and escalating double-digit royalties varying by country of sale and based on the level of annual net sales . therefore , the results from the kodiac study , the timing and outcome of approval review of nktr-118 by the fda and ema , the timing of the commercial launch of nktr-118 ( if approved ) , and the level of nktr-118 sales , will have a significant impact on our financial condition and future business prospects . our second most advanced drug candidate , nktr-102 , is a next-generation topoisomerase i inhibitor , currently being evaluated as a single-agent therapy in a phase 3 open-label , randomized , multicenter clinical study in patients with metastatic breast cancer . this phase 3 clinical study , which we call the beacon study ( breast cancer outcomes with nktr-102 ) , was initiated by us in december 2011. the beacon study is scheduled to enroll approximately 840 patients with metastatic breast cancer . the beacon study will require a substantial investment over the next three years . in the first quarter of 2012 , we are also completing an expanded phase 2 clinical study for nktr-102 in patients with platinum-resistant ovarian cancer . the original phase 2 52 clinical study was completed in mid-2010 and we further expanded this study to enroll up to 110 additional women with platinum-resistant ovarian cancer who had progressed after prior treatment with doxil ® ( doxorubicin hcl liposome injection ) . in november 2011 , we announced that enrollment in this expanded phase 2 study was slower than anticipated because of a shortage of doxil ® related to serious manufacturing issues being experienced by the manufacturer and supplier of doxil ® . as of february 2012 , approximately 94 of the planned 110 patients had been enrolled in the study . we are currently in the process of compiling and performing verification procedures on certain top-line results ( i.e . objective tumor response rate ) from the patients enrolled to date . results from this study and communication with government health authorities in both the united states and eu , will guide our future development and regulatory strategy for nktr-102 in ovarian cancer . we also have a significant collaboration with bayer healthcare llc ( bayer ) for amikacin inhale , an inhaled solution of amikacin , an aminoglycoside antibiotic , that has completed phase 2 development . preparations for a phase 3 clinical study , which we currently expect to start in the second half of 2012 , are continuing . story_separator_special_tag cost of goods sold ( in thousands , except percentages ) replace_table_token_8_th the decrease in cost of goods sold during the year ended december 31 , 2011 compared to the year ended december 31 , 2010 is primarily due to the $ 2.5 million decrease in product sales in 2011 and an increase in overall commercial and proprietary manufacturing activity in 2011 compared to 2010 that resulted in decreased costs per unit . the increase in product gross margin during the year ended december 31 , 2011 compared to the year ended december 31 , 2010 is primarily due to the different mix of products sold and the decreased costs per unit in 2011 resulting from increased manufacturing activity . 56 the decrease in cost of goods sold during the year ended december 31 , 2010 compared to the year ended december 31 , 2009 is primarily due to the $ 2.7 million decrease in product sales and the inclusion in cost of goods sold in 2009 of a $ 2.1 million success fee that became due to one of our former consulting firms in 2009. the increase to product gross margin during the year ended december 31 , 2010 compared to the year ended december 31 , 2009 is primarily attributable to the $ 2.1 million success fee included in cost of goods sold in 2009. as a result of the fixed cost base associated with our manufacturing activities , we expect product gross margin to fluctuate in future periods depending on the level of manufacturing orders from our customers . however , due to the fixed price nature of certain of our significant supply agreements , we expect that gross margin will decrease in 2012 compared to 2011. research and development expense ( in thousands , except percentages ) replace_table_token_9_th research and development expense consists primarily of personnel costs , including salaries , benefits , and stock-based compensation , clinical study costs , direct costs of outside research , materials , supplies , licenses and fees . research and development expense also includes certain overhead allocations consisting of various support and facilities related costs . the increase in research and development expense for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 is primarily attributable to a $ 7.5 million increase in direct research and development program costs and related materials costs , a $ 3.0 million increase in salaries and employee benefits resulting from increased headcount to support our expanded clinical efforts , and a $ 6.3 million increase in support and facilities-related costs , which includes increased non-cash depreciation and non-cash rent expenses related to our new facility in the mission bay area of san francisco , california ( mission bay facility ) . the increase in research and development expense for the year ended december 31 , 2010 compared to the year ended december 31 , 2009 is primarily attributable to an $ 8.4 million increase in salaries and employee benefits due to increased headcount to support our expanded clinical development efforts and further investment in and development of proprietary drug candidates in our research and development pipeline . the increase also includes a $ 3.8 million increase in non-cash stock-based compensation expense due to our higher stock price and increased headcount , a $ 3.1 million increase to facilities and equipment costs primarily due to the completion of our india research facility and to the move to our mission bay facility , and a $ 2.7 million increase in supplies , including clinical trial materials . these expense increases were partially offset by a $ 5.5 million decrease in outside services , including contract research organizations , due primarily to lower expenses for the nktr-118 and nktr-119 programs as a result of our successful completion of phase 2 clinical studies and collaboration with astrazeneca pursuant to the license agreement entered into in september 2009 . 57 we utilize our employee and infrastructure resources across multiple development projects as well as our research programs directed towards identifying drug candidates based on our technology platform . the following table shows expenses incurred for preclinical study support , contract manufacturing for clinical supplies , clinical and regulatory services provided by third parties and direct materials costs for each of our drug candidates . the table also presents other costs and overhead consisting of personnel , facilities and other indirect costs ( in thousands ) : replace_table_token_10_th ( 1 ) clinical study status definitions are provided in the chart found in part i , item 1. business . ( 2 ) in addition , during the year ended december 31 , 2011 , we made $ 11.2 million of prepayments to certain vendors in our beacon study ( 3 ) partnered with bayer healthcare llc in august 2007. as part of the novartis pulmonary asset sale , we retained an exclusive license to this technology for the development and commercialization of this drug candidate . ( 4 ) partnered with astrazeneca in 2009. in general , all development costs incurred by us after partnering with astrazeneca are reimbursed by astrazeneca . we expect research and development expense to substantially increase over the next several years . we plan to continue to advance nktr-102 in the beacon study ( metastatic breast cancer ) and in phase 2 clinical studies in ovarian and colorectal cancers . our expanded phase 2 clinical study in platinum resistant/refractory ovarian cancer patients is expected to continue throughout 2012. based on our compilation and review of preliminary interim results in the expanded phase 2 study in ovarian cancer and our communications with government health authorities , we will decide the future of our clinical development efforts in this indication . at the same time , we continue to advance the phase 2 clinical study for nktr-102 in colorectal cancer patients . we will be funding all of the clinical development costs for nktr-102 without reimbursement from a collaboration partner for the foreseeable future . the clinical development costs for nktr-102 will be significant .
| results of operations years ended december 31 , 2011 , 2010 , and 2009 revenue ( in thousands , except percentages ) replace_table_token_6_th 54 our revenue is derived from our collaboration agreements , under which we may receive product sales revenue , royalties , license fees , milestone payments or contract research payments . revenue is recognized when there is persuasive evidence that an arrangement exists , delivery has occurred , the price is fixed or determinable , and collection is reasonably assured . upfront fees received for license and collaborative agreements are recognized ratably over our expected performance period under the arrangement . as a result , there may be significant variations in the timing of receipt of cash payments and our recognition of revenue . management makes its best estimate of the period over which we expect to fulfill our performance obligations . given the uncertainties in research and development collaborations , significant judgment is required by management to determine the performance periods . product sales product sales include cost-plus and fixed price manufacturing and supply agreements with our collaboration partners . product sales decreased during the years ended december 31 , 2011 and 2010 compared to the prior periods primarily as a result of decreased product demand from our collaboration partners due in part to the transfer of manufacturing activities to certain collaboration partners . the timing of shipments is based on the demand and requirements of our collaboration partners and is not ratable throughout the year . we expect product sales to increase in 2012 compared with 2011. royalty revenues we receive royalty revenue from certain of our collaboration partners based on their net sales of commercial products . royalty revenues increased during the years ended december 31 , 2011 and 2010 compared to the prior periods primarily as a result of the increase in royalties received from roche 's mircera ® and ucb pharma 's cimzia ® product sales .
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on march 3 , 2020 dinar zuz provided an additional amount of $ 450,000 to the company which was be provided in a form of the dinar zuz convertible note pursuant to a securities purchase agreement between the company and dinar zuz , dated july 30 , 2019. additionally , on february 10 , 2020 the company issued 1,157,478 shares of its common stock to dinar zuz llc , as a result of a conversion of the dinar convertible note in the amount of $ 700,000. despite the capital raise that we have conducted the above conditions raise substantial doubt about our ability to continue as a going concern . although we anticipate that cash resources will be available to the company through its current operations , it believes existing cash will not be sufficient to fund planned operations and projects investments through the next 12 months . therefore , we are still striving to increase our sales , attain profitability and raise additional funds for future operations . any meaningful equity or debt financing will likely result in significant dilution to our existing stockholders . there is no assurance that additional funds will be available on terms acceptable to us , or at all . since inception , we have financed our cash flow requirements through issuance of common stock , related party advances and debt . as we expand our activities , we may , and most likely will , continue to experience net negative cash flows from operations . additionally , we anticipate obtaining additional financing to fund operations through common stock offerings , to the extent available , or to obtain additional financing to the extent necessary to augment our working capital . in the future we need to generate sufficient revenues from sales in order to eliminate or reduce the need to sell additional stock or obtain additional loans . there can be no assurance we will be successful in raising the necessary funds to execute our business plan . we anticipate that we will incur operating losses in the next twelve months . our lack of operating history makes predictions of future operating results difficult to ascertain . our prospects must be considered in light of the risks , expenses and difficulties frequently encountered by companies in their early stage of development , particularly companies in new and rapidly evolving markets . such risks for us include , but are not limited to , an evolving and unpredictable business model and the management of growth . to address these risks , we must , among other things , implement and successfully execute our business and marketing strategy surrounding our cuentas braded general-purpose reloadable cards , continually develop and upgrade our website , respond to competitive developments , lower our financing costs and specifically our accounts receivable factoring costs , and attract , retain and motivate qualified personnel . there can be no assurance that we will be successful in addressing such risks , and the failure to do so can have a material adverse effect on our business prospects , financial condition and results of operations . 21 off-balance sheet arrangements the company has no off-balance sheet arrangements and does not anticipate entering into any such arrangements in the foreseeable future . impact of inflation the company does not expect inflation to be a significant factor in operation of the business . critical accounting policies the methods , estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements , which we discuss under the heading “ results of operations ” following this section of our md & a . some of our accounting policies require us to make difficult and subjective judgments , often as a result of the need to make estimates of matters that are inherently uncertain . we set forth below those material accounting policies that we believe are the most critical to an investor 's understanding of our financial results and condition and that require complex management judgment . use of estimates the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states ( “ ‘ us gaap ” ) requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods . actual results could differ from those estimates . as applicable to the consolidated financial statements , the most significant estimates and assumptions relate to allowances for impairment of intangible assets , fair value of stock-based compensation and fair value calculations related to embedded derivative features of outstanding convertible notes payable and going concern . 22 impairment of long-lived assets in accordance with asc topic 360 , formerly sfas no . 144 , accounting for the impairment or disposal of long-lived assets , the company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable . the assessment of possible impairment is based on the company 's ability to recover the carrying value of its asset based on estimates of its undiscounted future cash flows . if these estimated future cash flows are less than the carrying value of the asset , an impairment charge is recognized for the difference between the asset 's estimated fair value and its carrying value . derivative liabilities and fair value of financial instruments fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes . story_separator_special_tag the value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the company 's statement of operations . the company recognizes compensation expenses for the value of non-employee awards based on the straight-line method over the requisite service period of each award , net of estimated forfeitures . the company estimates the fair value of stock options granted as equity awards using a black-scholes options pricing model . the option-pricing model requires a number of assumptions , of which the most significant are share price , expected volatility and the expected option term ( the time from the grant date until the options are exercised or expire ) . expected volatility is estimated based on volatility of similar companies in the technology sector . the company has historically not paid dividends and has no foreseeable plans to issue dividends . the risk-free interest rate is based on the yield from governmental zero-coupon bonds with an equivalent term . the expected option term is calculated for options granted to employees and directors using the “ simplified ” method . grants to non-employees are based on the contractual term . changes in the determination of each of the inputs can affect the fair value of the options granted and the results of operations of the company . 24 recently issued accounting standards on february 14 , 2018 , the fasb issued asu 2018-02 , income statement—reporting comprehensive income ( topic 220 ) : reclassification of certain tax effects from accumulated other comprehensive income . the amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the tax cuts and jobs act of 2017. the amendments in this update affect any entity that is required to apply the provisions of topic 220 , income statement—reporting comprehensive income , and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by gaap . the amendments in this update are effective for all organizations for fiscal years beginning after december 15 , 2018 , and interim periods within those fiscal years . early adoption is permitted . organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period ( or periods ) in which the effect of the change in the u.s. federal corporate income tax rate in the tax cuts and jobs act is recognized . in june 2018 , the fasb issued compensation—stock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting . the amendments in this update expand the scope of topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees . the amendments in this update are effective for public business entities for fiscal years beginning after december 15 , 2018 , including interim periods within that fiscal year . the company adopted asu 2018-07 effective january 1 , 2019 , and the adoption of this standard did not have a material impact on the company 's consolidated financial . in july 2018 , the fasb issued asu 2018-11 , leases ( topic 842 ) : targeted improvements . the amendments in this update related to separating components of a contract affect the amendments in update 2016-02 , which are not yet effective but can be early adopted . for entities that have not adopted topic 842 before the issuance of this update , the effective date and transition requirements for the amendments in this update related to separating components of a contract are the same as the effective date and transition requirements in update 2016-02. for entities that have adopted topic 842 before the issuance of this update , the transition and effective date of the amendments related to separating components of a contract in this update are as follows : 1. the practical expedient may be elected either in the first reporting period following the issuance of this update or at the original effective date of topic 842 for that entity . 2. the practical expedient may be applied either retrospectively or prospectively . all entities , including early adopters , that elect the practical expedient related to separating components of a contract in this update must apply the expedient , by class of underlying asset , to all existing lease transactions that qualify for the expedient at the date elected . 25 in august 2018 , the fasb issued asu 2018-13 , fair value measurement ( topic 820 ) : disclosure framework – changes to the disclosure requirements for fair value measurement . the amendments apply to reporting entities that are required to make disclosures about recurring or nonrecurring fair value measurements and should improve the cost , benefit , and effectiveness of the disclosures . asu 2018-13 categorized the changes into those disclosures that were removed , those that were modified , and those that were added . the primary disclosures that were removed related to transfers between level 1 and level 2 investments , along with the policy for timing of transfers between levels . in addition , disclosing the valuation processes for level 3 fair value measurements was removed . the amendments are effective for all organizations for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2019. early adoption is permitted . the company notes that this guidance will impact its disclosures beginning january 1 , 2020. in august 2018 , the fasb issued asu 2018-15 , intangibles—goodwill and other—internal-use software ( subtopic 350-40 ) : customer 's accounting for implementation costs incurred in a cloud computing arrangement that is a service contract . the amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use
| results of operations revenue the company generates revenues through the sale and distribution of prepaid telecom minutes and other related telecom services . replace_table_token_4_th revenues during the year ended december 31 , 2019 totaled $ 967,000 compared to $ 74,650,000 for the year ended december 31 , 2018. the decrease in the total revenue is mainly due to the rescission of the limecom acquisition which was consolidated for the year ended december 31 , 2018 and not consolidated in the year ended december 31 , 2019. the company no longer owns limecom as of january 2019. costs of revenue costs of revenue consists of the purchase of wholesale minutes for resale and related telecom platform costs . cost of revenues during the year ended december 31 , 2019 totaled $ 808,000 compared to $ 74,177,000 for the year ended december 31 , 2018. the decrease in the total cost of revenue is mainly due to the rescission of the limecom acquisition which was consolidated for during the year ended december 31 , 2018 and not consolidated in the year ended december 31 , 2019. the company no longer owns limecom as of january 2019 . 18 operating expenses operating expenses totaled $ 2,305,000 during the year ended december 31 , 2019 compared to $ 5,686,000 during the year ended december 31 , 2018 representing a net decrease of $ 3,381,000. the decrease in the operating expenses is mainly due to loss on disposal and impairment of assets in the amount of $ 1,917,000 that the company recorded in 2018 and the rescission of the limecom acquisition which was consolidated for the full twelve months ended december 31 , 2018 and not consolidated in the twelve-month period ended december 31 , 2019. the company no longer owns limecom as of january 2019. other income the company recognized other income of $ 860,000 during the year ended december 31 , 2019 compared
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this section includes discussion of financial information as of and for the year ended december 31 , 2020 and provides comparisons to the same information as of and for the year ended december 31 , 2019. comparisons of 2019 financial information to the same information for 2018 can be found in `` management 's discussion and analysis of financial condition and results of operations '' in part ii , item 7 of the company 's annual report on form 10-k for the year ended december 31 , 2019 as filed with the securities and exchange commission on february 25 , 2020. certain statements appearing in this item 7 are forward-looking statements within the meaning of the federal securities laws . our actual results may differ materially . we caution you not to place undue reliance on any such forward-looking statements . see “ cautionary factors that may affect future results ” for additional information regarding our forward-looking statements . background as of december 31 , 2020 , we owned interests in 48 hotels in major urban gateway markets including new york , washington dc , boston , philadelphia , san diego , los angeles , miami and select markets on the west coast including 37 wholly-owned hotels , 1 hotel through our interest in a consolidated joint venture , and interests in 10 hotels owned through unconsolidated joint ventures . we have elected to be taxed as a reit for federal income tax purposes , beginning with the taxable year ended december 31 , 1999. for purposes of the reit qualification rules , we can not directly operate any of our hotels . instead , we must lease our hotels to a third party lessee or to a trs , provided that the trs engages an eligible independent contractor , as defined under the reit rules , to manage the hotels . as of december 31 , 2020 , we have leased all of our hotels to a wholly-owned trs , a joint venture owned trs , or an entity owned by our wholly-owned trs . each of these trs entities will pay qualifying rent , and the trs entities have entered into management contracts with qualified independent managers , including hhmlp , with respect to our hotels . we intend to lease all newly acquired hotels to a trs . the trs structure enables us to participate more directly in the operating performance of our hotels . each trs directly receives all revenue from , and funds all expenses relating to , hotel operations of the hotels that it leases . each trs is also subject to income tax on its earnings . covid-19 at the beginning of the year , we expected that we would achieve operating results for 2020 that would out perform other market participants due to the strong performance anticipated from newly renovated and upgraded hotels in our portfolio , primarily led by our hotels in south florida . we started 2020 off on solid footing with our comparable portfolio achieving revpar growth through the end of february 2020 but this was quickly erased as a result of the global economic slowdown caused by the covid-19 pandemic . due to the covid-19 pandemic and the effects of travel restrictions both globally and in the united states , the hospitality industry has experienced drastic drops in demand . the global impact of the pandemic has been rapidly evolving , and in the united states , certain states and cities , including most of the states and cities where we own properties , have reacted by instituting various restrictive measures such as quarantines , restrictions on travel , school closings , `` stay at home '' rules and restrictions on types of business that may continue to operate . during the first half of 2020 as a result of the impact of the covid-19 pandemic , we had temporarily closed 21 of our 48 hotels while our remaining hotels operated in a significantly reduced capacity . during the second quarter of 2020 we reopened 5 hotels , during the third quarter of 2020 we reopened 8 hotels , and during the fourth quarter of 2020 we reopened 2 hotels resulting in 6 hotels remaining closed as of december 2020. we believe the ongoing effects of the covid-19 pandemic on our operations have had , and will continue to have , a material negative impact on our financial results and liquidity , and such negative impact may continue beyond the containment of the pandemic . in addition to our focus on strategically reopening hotels and driving occupancy at these hotels , we have remained focused on executing expense mitigation measures and shoring up our liquidity position as we continue to face a challenging operating environment . for example , we suspended all common and preferred dividends in 2020 , deferred certain planned capital expenditures and amended our credit agreements . we can not assure you that our assumptions used to estimate our liquidity requirements will be correct because the lodging industry has not previously experienced such an abrupt and drastic reduction in hotel demand , and as a consequence , our ability to be predictive is uncertain . in addition , the magnitude , duration , and speed of the pandemic is uncertain and we can not estimate when travel demand will recover . as a consequence , we can not estimate the impact on our business , financial condition , or operating results with reasonable certainty . furthermore , as a result of the turmoil in the financial markets resulting from the spread of the novel coronavirus and the global covid-19 pandemic , on march 19 , 2020 , in order to preserve liquidity , we revoked our previously announced first quarter 2020 quarterly cash dividends on our common shares , 6.875 % series c cumulative redeemable preferred shares , 6.50 % series d cumulative redeemable preferred shares and 6.50 % series e cumulative redeemable preferred shares . story_separator_special_tag gains / losses on insurance recoveries during the year ended december 31 , 2020 , the company recorded a gain from insurance recoveries in the amount of $ 8,960 compared to property losses in excess of recoveries of $ 12 during the comparable period in 2019. during the year ended december 31 , 2020 , the company received a total of $ 10,749 in insurance proceeds , which was offset by a total of $ 1,789 in funds applied to previously recorded insurance receivables . we received no insurance proceeds during the year ended december 31 , 2019. included in the insurance proceeds above is a final settlement payment of $ 8,147 from our insurer related to the hurricane irma damages incurred at the parrot key hotel & villas . operating ( loss ) income operating loss for the year ended december 31 , 2020 was $ 122,389 compared to operating income of $ 46,370 during the same period in 2019. our operating loss for the year ended december 31 , 2020 compared to operating income during the same period in 2019 was largely the result of hotel operating revenues decreasing at a larger rate than hotel operating expenses , both of which are the result of decreased operations across our portfolio due to the covid-19 pandemic . additionally , we experienced increases in real estate taxes and insurance , and a loss on an impairment of assets during 2020 compared to 2019. partially offsetting this loss was a decrease in general and administrative expenses and a gain from insurance recoveries . interest expense interest expense increased $ 1,074 from $ 52,205 for the year ended december 31 , 2019 to $ 53,279 for year ended december 31 , 2020. the balance of our borrowings , excluding discounts and deferred costs , have increased by $ 66,974 in total between december 31 , 2019 and december 31 , 2020 , as we completed net draws on our line of credit of $ 85,053 , which was partially offset by net mortgage debt paydowns of $ 1,684 and term loan paydowns of $ 16,395. the increase in interest expense when comparing the year ended december 31 , 2020 to the corresponding period in 2019 can be explained by : ( 1 ) an increase in interest expense from the credit facility which contributed $ 2,013 incrementally ; and ( 2 ) a decrease in interest expense from our notes payable and variable mortgage debt due to variable rates decreasing , resulting in a decrease in expense of $ 1,178 . 42 gain on disposition of hotel properties during the year ended december 31 , 2020 , the company sold the sheraton wilmington and recorded a gain of $ 1,158 as a result . for the year ended december 31 , 2019 we sold no hotel properties and , therefore , recorded no gain . unconsolidated joint venture investments the income ( loss ) from unconsolidated joint ventures consists of our interest in the operating results of the properties we own in joint ventures . income from our unconsolidated joint ventures decreased by $ 3,629 to a loss of $ 2,938 for the year ended december 31 , 2020 compared to income of $ 691 during the same period in 2019. this reduction in income relates to the net operating losses of our joint venture properties for the year ended december 31 , 2020 compared to 2019. income tax expense during the year ended december 31 , 2020 , the company recorded an income tax expense of $ 11,329 compared to $ 92 for the year ended december 31 , 2019. after considering various factors , including future reversals of existing taxable temporary differences , future taxable income and tax planning strategies , we believe that as of december 31 , 2020 it is not more likely than not that we will realize our net deferred tax asset . during the year ended december 31 , 2020 we recorded a valuation allowance of $ 23,591 resulting in a net deferred tax asset of $ 0 as of december 31 , 2020. absent the valuation allowance , the amount of income tax expense or benefit that the company typically records depends mostly on the amount of taxable income or loss that is generated by our consolidated taxable reit subsidiaries ( “ trs ” ) . net loss applicable to common shareholders net loss applicable to common shareholders for the year ended december 31 , 2020 was $ 190,521 compared to a net loss of $ 27,843 during the same period in 2019. this increase in net loss was primarily caused by : ( 1 ) lower operating income of $ 168,759 ( 2 ) decreased income from unconsolidated joint ventures of $ 3,629 ; ( 3 ) increased interest expense of $ 1,074 ; and ( 4 ) increased income tax expense of $ 11,237. partially offsetting these items was $ 20,737 in additional loss allocated to minority interest holders and a higher net gain on hotel dispositions of $ 1,158. comprehensive ( loss ) income applicable to common shareholders comprehensive loss applicable to common shareholders for the year ended december 31 , 2020 was $ 210,806 compared to comprehensive loss of $ 31,060 for the same period in 2019. this change can be attributed to the items affecting net loss applicable to common shareholders as more fully described above . for the year ended december 31 , 2020 , we recorded comprehensive loss of $ 211,608 compared to $ 9,342 of comprehensive income for the year ended december 31 , 2019. liquidity , capital resources , and equity offerings ( dollars in thousands , except share data ) potential sources of capital our organizational documents do not limit the amount of indebtedness that we may incur . our ability to incur additional debt is dependent upon a number of factors , including the current state of the overall credit markets , our degree of leverage and borrowing restrictions imposed by debt covenants and existing lenders .
| summary of operating results the following tables outline operating results for the company 's portfolio of wholly owned hotels and those owned through joint venture interests that are consolidated in our financial statements for the years ended december 31 , 2020 , and 2019. common key performance metrics utilized by the lodging industry are occupancy , average daily rate ( `` adr '' ) , and revenue per available room ( `` revpar '' ) . occupancy is calculated as the percentage total rooms sold compared to rooms available to be sold , while adr measures the average rate earned per occupied room , calculated as total room revenue divided by total rooms sold . revpar is a derivative of these two metrics which shows the total room revenue earned per room available to be sold . management uses these metrics in comparison to other hotels in our self-defined competitive peer set within proximity to each of our hotel properties . we define a comparable consolidated hotel as one that is currently consolidated , that we have owned in whole or in part for the entirety of the periods being presented , and is deemed fully operational as of the end of the period reported . based on this definition , for the year ended december 31 , 2020 , there are 37 comparable consolidated hotels . the comparable key hotel operating statistics presented in the table below have been computed using pro forma methodology to compute the operating results for the portion of time prior to our ownership of hotels purchased during the comparable period for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 for our comparable hotels .
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the oilfield rentals business acquired through the sse merger has a fleet of premium rental tools , story_separator_special_tag recent developments — on october 25 , 2018 , we acquired all of the issued and outstanding shares of current power solutions , inc. ( “ current power ” ) . current power is a provider of electrical controls and automation to the energy , marine and mining industries . operational and financial data in the discussion and analysis below includes the results of operations of the current power business in our other operations since october 25 , 2018. on march 27 , 2018 , we entered into an amended and restated credit agreement , which is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $ 600 million , including a letter of credit facility that , at any time outstanding , is limited to $ 150 million and a swing line facility that , at any time outstanding , is limited to $ 20 million . see “ liquidity and capital resources. ” on february 20 , 2018 , we acquired the business of superior qc , llc ( “ superior qc ” ) , including its assets and intellectual property . superior qc is a provider of software and services used to improve the statistical accuracy of horizontal wellbore placement . superior qc 's measurement-while-drilling ( mwd ) survey fdir ( fault detection , isolation and recovery ) service is a data analytics technology to analyze mwd survey data in real-time and more accurately identify the position of a well . operational and financial data in the discussion and analysis below includes the results of operations of the superior qc business in our directional drilling segment since february 20 , 2018. on january 19 , 2018 , we completed an offering of $ 525 million aggregate principal amount of our 3.95 % senior notes due 2028 ( the “ 2028 notes ” ) . we used $ 239 million of the net proceeds from the sale to repay amounts outstanding under our revolving credit facility . on october 11 , 2017 , we acquired all of the issued and outstanding limited liability company interests of ms directional , llc ( f/k/a multi-shot , llc ) ( “ ms directional ” ) . ms directional is a leading directional drilling services company in the united states , with operations in most major producing onshore oil and gas basins . ms directional provides a comprehensive suite of directional drilling services , including directional drilling , downhole performance motors , motor rentals , directional surveying , measurement-while-drilling , and wireline steering tools . operational and financial data in the discussion and analysis below includes the results of operations of the ms directional business in our directional drilling segment since october 11 , 2017. on april 20 , 2017 , pursuant to an agreement and plan of merger ( the “ merger agreement ” ) with seventy seven energy inc. ( “ sse ” ) , a subsidiary of ours was merged with and into sse ( the “ sse merger ” ) , with sse continuing as the surviving entity and one of our wholly-owned subsidiaries . on april 20 , 2017 , following the sse merger , sse was merged with and into our newly-formed subsidiary named seventy seven energy llc ( “ sse llc ” ) , with sse llc continuing as the surviving entity and one of our wholly-owned subsidiaries . through the sse merger , we acquired a fleet of 91 drilling rigs , 36 of which we consider to be apex® rigs . additionally , through the sse merger , we acquired approximately 500,000 horsepower of fracturing equipment located in oklahoma and texas . the oilfield rentals business acquired through the sse merger has a fleet of premium oilfield rental tools and provides specialized services for land-based oil and natural gas drilling , completion and workover activities . operational and financial data in the discussion and analysis below includes the results of operations of the sse business since april 20 , 2017. management overview — we are a houston , texas-based oilfield services company that primarily owns and operates in the united states one of the largest fleets of land-based drilling rigs and a large fleet of pressure pumping equipment . our contract drilling business operates in the continental united states and western canada , and we are pursuing contract drilling opportunities outside of north america . our pressure pumping business operates primarily in texas and the mid-continent and appalachian regions . we also provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the united states , and we provide services that improve the statistical accuracy of horizontal wellbore placement . we have other operations through which we provide oilfield rental tools in select markets in the united states . we also manufacture and sell pipe handling components and related technology to drilling contractors , and provide electrical controls and automation to the energy , marine and mining industries , in north america and other select markets . in addition , we own and invest , as a non-operating working interest owner , in oil and natural gas assets that are primarily located in texas and new mexico . the closing price of oil was as high as $ 107.95 per barrel in june 2014. prices began to fall in the third quarter of 2014 and reached a twelve-year low of $ 26.19 in february 2016. oil prices have recovered from the lows experienced in the first quarter of 2016. oil prices reached a high of $ 77.41 in june 2018. oil prices remain volatile , as the closing price of oil reached a fourth quarter 2018 high of $ 76.40 per barrel on october 3 , 2018 , before declining by 42 % over the course of three months to reach a low of $ 44.48 per barrel in late december 2018. oil prices averaged $ 59.08 per barrel in the fourth quarter of story_separator_special_tag for contracts that contain variable dayrate pricing , our backlog calculation uses the dayrate in effect for periods where the dayrate is fixed , and , for periods that remain subject to variable pricing , uses the commodity price in effect at december 31 , 2018. in addition , our term drilling contracts are generally subject to termination by the customer on short notice and provide for an early termination payment to us in the event that the contract is terminated by the customer . for contracts on which we have received an early termination notice , our backlog calculation includes the early termination rate , instead of the dayrate , for the period over which we expect to receive the lower rate . see “ item 1a . risk factors – our current backlog of contract drilling revenue may continue to decline and may not ultimately be realized , as fixed-term contracts may in certain instances be terminated without an early termination payment. ” ongoing factors which could continue to adversely affect utilization rates and pricing , even in an environment of high oil and natural gas prices and increased drilling activity , include : movement of drilling rigs from region to region , reactivation of drilling rigs , refurbishment and upgrades of existing drilling rigs , development of new technologies that enhance drilling efficiency , construction of new technology drilling rigs . pressure pumping pressure pumping operations accounted for 47.3 % of our consolidated 2018 revenues , and pressure pumping revenues increased 31.1 % over 2017. as of december 31 , 2018 , we had approximately 1.6 million horsepower in our pressure pumping fleet . in response to unreasonably low prices in the completions market , we reduced the number of active frac spreads to 20 as of the end of the fourth quarter and idled three spreads early in the first quarter of 2019. directional drilling directional drilling operations accounted for 6.3 % of our consolidated 2018 revenues . activity for directional drilling commenced with the acquisition of ms directional in october 2017 , which provides a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the united states . our directional drilling services include directional drilling , downhole performance motors , motor rentals , directional surveying , measurement-while-drilling , and wireline steering tools , and we provide services that improve the statistical accuracy of horizontal wellbore placement . other operations other operations revenues accounted for 3.4 % of our consolidated 2018 revenues , and our other operations revenues increased 60.9 % over 2017. our oilfield rentals business , which was acquired with the sse merger , provides the largest revenue contribution to our other operations . our oilfield rentals business has a fleet of premium oilfield rental tools and provides specialized services for land-based oil and natural gas drilling , completion and workover activities . other operations also includes the results of our electrical controls and automation business , the results of our pipe handling components and related technology business , and the results of our ownership , as a non-operating working interest owner , in oil and natural gas assets that are primarily located in texas and new mexico . capital expenditures cash capital expenditures for 2018 totaled $ 641 million . for 2019 , based on near-term activity levels , we expect cash used for capital expenditures to be approximately $ 465 million . 30 for the three years ended december 31 , 2018 , our operating income ( loss ) consisted of the following ( dollars in thousand s ) : replace_table_token_9_th discussion of our operating income ( loss ) follows in the “ results of operations ” section of management 's discussion and analysis of financial condition and results of operations . while demand for our contract drilling and pressure pumping services improved in 2018 and merger and integration expenses were lower , an impairment of goodwill and write-downs to drilling and pressure pumping equipment contributed to a consolidated net loss of $ 321 million for 2018 , compared to consolidated net income of $ 5.9 million for 2017 and a consolidated net loss of $ 319 million for 2016. our net income for 2017 was positive due to the 2017 tax law change . story_separator_special_tag new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 32 replace_table_token_13_th ( 1 ) margin is defined as revenues less direct operating costs and excludes depreciation , depletion , amortization and impairment and selling , general and administrative expenses . revenues , direct operating costs , and depreciation , depletion , amortization and impairment expense from other operations increased primarily as a result of the inclusion of our oilfield rentals business acquired in the sse merger on april 20 , 2017. the increase in capital expenditures was due to investments in the oilfield rentals business . replace_table_token_14_th selling , general and administrative expense increased in 2018 , but as a percentage of consolidated revenues decreased to 2.5 % , compared to 3.0 % in 2017. selling , general and administrative expense increased in 2018 primarily due to the personnel added as a result of the sse merger . merger and integration expenses incurred in 2018 are related to the sse merger , the ms directional acquisition and the superior qc acquisition . merger and integration expenses incurred in 2017 are related to the sse merger and the ms directional acquisition . other operating income includes net gains associated with the disposal of assets . accordingly , the related gains or losses have been excluded from the results of specific segments . the majority of the net gain on asset disposals during the 2018 period reflects gains on disposal of drilling equipment . the 2017 period included a gain of $ 11.2 million related to the sale of real estate .
| results of operations comparison of the years ended december 31 , 2018 and 2017 the following tables summarize results of operations by business segment for the years ended december 31 , 2018 and 2017 : replace_table_token_10_th ( 1 ) margin is defined as revenues less direct operating costs and excludes depreciation , amortization and impairment and selling , general and administrative expenses . average margin per operating day is defined as margin divided by operating days . generally , the revenues in our contract drilling segment are most impacted by two primary factors : our average number of rigs operating and our average revenue per operating day . during 2018 , our average number of rigs operating was 175 in the united states and one in canada , compared to 136 in the united states and two in canada in 2017. our average rig revenue per operating day was $ 22,190 in 2018 , compared to $ 20,620 in 2017. our average revenue per operating day is largely dependent on the pricing terms of our rig contracts . revenues and direct operating costs increased primarily due to an increase in operating days . operating days and average rigs operating increased in 2018 primarily due to the recovery in the oil and natural gas industry , the contribution of rigs acquired in the sse merger and the contribution from rigs that have been upgraded to super-spec capability . capital expenditures increased in 2018 due to the upgrade of rigs to super-spec capability , higher maintenance capital expenditures and other equipment upgrades . depreciation , amortization , and impairment for 2018 included a charge of $ 48.4 million related to the retirement of 42 legacy non-apex® rigs and related equipment . based on the strong customer preference across the industry for super-spec drilling rigs , we believe the 42 rigs that were retired had limited commercial opportunity .
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aggregate reserves relating to chargeback activity were $ 23.3 million story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors , including those discussed in item 1a . `` risk factors '' and `` forward-looking statements . '' we have acquired and initiated a number of businesses during the periods presented and addressed in this management 's discussion and analysis of financial condition and results of operations . our financial statements include the results of operations of those businesses from the date acquired or when they commenced operations . this management 's discussion and analysis of financial condition and results of operations has been updated to reflect the revision of our financial statements for entities which have been treated as discontinued operations through december 31 , 2013. overview we are an international transportation services company , operating automotive retail dealerships , commercial vehicle distribution and car rental franchises principally in the united states , western europe , australia and new zealand , and employing approximately 18,000 people worldwide . automotive dealership . we are the second largest automotive retailer headquartered in the u.s. as measured by the $ 14.7 billion in total revenue we generated in 2013. as of december 31 , 2013 , we operated 324 automotive retail franchises , of which 176 franchises are located in the u.s. and 148 franchises are located outside of the u.s. the franchises outside the u.s. are located primarily in the u.k. in 2013 , we retailed and wholesaled more than 442,000 vehicles . we are diversified geographically , with 65 % of our total automotive dealership revenues in 2013 generated in the u.s. and puerto rico and 35 % generated outside the u.s. we offer over 35 vehicle brands , with 69 % of our automotive dealership revenue in 2013 generated from premium brands , such as audi , bmw , mercedes-benz and porsche . each of our dealerships offers a wide selection of new and used vehicles for sale . in addition to selling new and used vehicles , we generate higher-margin revenue at each of our dealerships through maintenance and repair services and the sale and placement of third-party finance and insurance products , third-party extended service and maintenance contracts and replacement and aftermarket automotive products . automotive dealerships represented 98.6 % of our total revenues and 97.5 % of our total gross profit in 2013 . 32 commercial vehicle . on august 30 , 2013 , we completed the acquisition of western star trucks australia , the exclusive importer and distributor of western star heavy duty trucks ( a daimler brand ) , man heavy and medium duty trucks and buses ( a vw group brand ) , and dennis eagle refuse collection vehicles , together with associated parts across australia , new zealand and portions of southeast asia . the business also includes three retail commercial vehicle dealerships . from our acquisition on august 30 , 2013 through december 31 , 2013 , this business generated $ 152.5 million of revenue through the distribution and retail sale of vehicles and parts to a network of more than 70 dealership locations . this business represented 1.0 % of our total revenues and 1.1 % of our total gross profit in 2013. car rental . we are the hertz car rental franchisee in the memphis , tennessee market and certain indiana markets . we currently manage more than fifty on- and off-airport hertz car rental locations . our hertz car rental operations represented 0.4 % of our total revenues and 1.4 % of our total gross profit in 2013 and complement our existing u.s. automotive dealership operations . penske truck leasing . we also hold a 9.0 % ownership interest in penske truck leasing co. , l.p. ( `` ptl '' ) , a leading provider of transportation services and supply chain management . ptl operates and maintains more approximately 205,000 vehicles and serves customers in north america , south america , europe and asia and is one of the largest purchasers of commercial trucks in north america . product lines include full-service truck leasing , truck rental and contract maintenance , logistics services such as dedicated contract carriage , distribution center management , transportation management and acting as lead logistics provider . ptl is owned 41.1 % by penske corporation , 9.0 % by us and the remaining 49.9 % of ptl is owned by direct and indirect subsidiaries of general electric capital corporation ( `` gecc '' ) . we account for our investment in ptl under the equity method , and we therefore record our share of ptl 's earnings each quarter on our statements of operations under the caption `` equity in earnings of affiliates , '' which also includes the results of our other investments . outlook the level of new automotive unit sales in our markets affects our results . the new vehicle market and the amount of customer traffic visiting our dealerships have improved during the past few years , and there are market expectations for continued improvement in 2014. in 2013 , u.s. car and light truck sales increased 7.5 % from 2012 to 15.6 million units . we believe the u.s. automotive market will continue to improve based upon industry forecast from companies such as ihs automotive , edmunds and kelley blue book , coupled with demand in the marketplace , an aging vehicle population , a strong credit environment for consumers , and the planned introduction of new models by many different vehicle brands . during 2013 , u.k. vehicle registrations increased 10.8 % from 2012 to 2.3 million registrations . story_separator_special_tag the future success of our business is dependent upon , among other things , general economic and industry conditions , our ability to consummate and integrate acquisitions , the level of vehicle sales in the markets where we operate , our ability to increase sales of higher margin products , especially service and parts services , our ability to realize returns on our significant capital investment in new and upgraded dealership facilities , our ability to integrate acquisitions , the success of our distribution of commercial vehicles and the return realized from our investments in various joint ventures and other non-consolidated investments . see item 1a . `` risk factors '' and `` forward-looking statements '' below . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america requires the application of accounting policies that often involve making estimates and employing judgments . such judgments influence the assets , liabilities , revenues and expenses recognized in our financial statements . management , on an ongoing basis , reviews these estimates and assumptions . management may determine that modifications in assumptions and estimates are required , which may result in a material change in our results of operations or financial position . the following are the accounting policies applied in the preparation of our financial statements that management believes are most dependent upon the use of estimates and assumptions . revenue recognition automotive dealership vehicle , parts and service sales . we record revenue when vehicles are delivered and title has passed to the customer , when vehicle service or repair work is completed and when parts are delivered to our customers . sales promotions that we offer to customers are accounted for as a reduction of revenues at the time of sale . rebates and other incentives offered directly to us by manufacturers are recognized as a reduction of cost of sales . reimbursements of qualified advertising expenses are treated as a reduction of selling , general and administrative expenses . the amounts received under certain manufacturer rebate and incentive programs are based on the attainment of program objectives , and such earnings are recognized either upon the sale of the vehicle for which the award was received , or upon attainment of the particular program goals if not associated with individual vehicles . taxes collected from customers and remitted to governmental authorities are recorded on a net basis ( excluded from revenue ) . during 2013 , 2012 , and 2011 , we earned $ 513.4 million , $ 474.9 million , and $ 374.1 million , respectively , of rebates , incentives and reimbursements from manufacturers , of which $ 500.3 million , $ 462.8 million , and $ 363.6 million , respectively , was recorded as a reduction of cost of sales . the remaining $ 13.1 million , $ 12.1 million , and $ 10.5 million was recorded as a reduction of selling , general and administrative expenses during 2013 , 2013 , and 2011 , respectively . automotive dealership finance and insurance sales . subsequent to the sale of a vehicle to a customer , we sell installment sale contracts to various financial institutions on a non-recourse basis ( with specified exceptions ) to mitigate the risk of default . we receive a commission from the lender equal to either the difference between the interest rate charged to the customer and the interest rate set by the financing institution or a flat fee . we also receive commissions for facilitating the sale of various products to customers , including guaranteed auto protection insurance , vehicle theft protection and extended service contracts . these commissions are recorded as revenue at the time the customer 35 enters into the contract . in the case of finance contracts , a customer may prepay or fail to pay their contract , thereby terminating the contract . customers may also terminate extended service contracts and other insurance products , which are fully paid at purchase , and become eligible for refunds of unused premiums . in these circumstances , a portion of the commissions we received may be charged back based on the terms of the contracts . the revenue we record relating to these transactions is net of an estimate of the amount of chargebacks we will be required to pay . our estimate is based upon our historical experience with similar contracts , including the impact of refinance and default rates on retail finance contracts and cancellation rates on extended service contracts and other insurance products . aggregate reserves relating to chargeback activity were $ 23.3 million and $ 23.4 million as of december 31 , 2013 and 2012 , respectively . commercial vehicle revenue . revenue from the distribution of vehicles and parts is recognized at the time of delivery of goods to the retailer . car rental revenue . rental and rental related revenues are recognized over the period the vehicles and accessories are rented based on the terms of the rental contract . taxes collected from customers and remitted to the governmental authorities are recorded on a net basis ( excluded from revenue ) . impairment testing franchise value impairment is assessed during the fourth quarter every year and upon the occurrence of an indicator of impairment through a comparison of its carrying amount and estimated fair value . an indicator of impairment exists if the carrying value of a franchise exceeds its estimated fair value and an impairment loss may be recognized up to that excess . the fair value of franchise value is determined using a discounted cash flow approach , which includes assumptions about revenue and profitability growth , franchise profit margins , and the cost of capital . we also evaluate our franchise agreements in connection with the annual impairment testing to determine whether events and circumstances continue to support our assessment that the franchise agreements have an indefinite life .
| results of operations the following tables present comparative financial data relating to our operating performance in the aggregate and on a `` same-store '' basis . dealership results are included in same-store comparisons when we have consolidated the acquired entity during the entirety of both periods being compared . as an example , if a dealership was acquired on january 15 , 2011 , the results of the acquired entity would be included in annual same-store comparisons beginning with the year ended december 31 , 2013 and in quarterly same store comparisons beginning with the quarter ended june 30 , 2012 . 2013 compared to 2012 and 2012 compared to 2011 ( in millions , except unit and per unit amounts ) our results for 2012 include costs of $ 17.8 million ( $ 13.0 million after-tax ) , or $ 0.14 per share , relating to the redemption of $ 375.0 million aggregate principal amount of our previously outstanding 7.75 % notes . our results for 2011 include an $ 11.0 million , or $ 0.12 per share , net income tax benefit . the components of the net benefit include ( a ) a $ 17.0 million , or $ 0.19 per share , positive adjustment primarily from the release of amounts previously recorded in the u.k. as uncertain tax positions as such positions were accepted by the u.k. tax authorities and ( b ) a negative adjustment relating to a valuation allowance against certain u.k. deferred tax assets of $ 6.0 million , or $ 0.07 per share , as evidence supporting the future realizability of such assets was no longer available .
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, 2015 ( inception ) to december 31 , 2015. these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements based on our audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement . our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements . an audit also includes assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audits provide a reasonable basis for our opinion . in our opinion , the financial statements referred to above present fairly , in all material respects , the financial position of jm global holding company as of december 31 , 2016 and 2015 , and the results of its operations and its cash flows for the year ended december 31 , 2016 and for the period from april 10 , 2015 ( inception ) to december 31 , 2015 , in conformity with accounting principles generally accepted in the united states of america . the accompanying financial statements have been prepared assuming that the company will continue as a going concern . as discussed in note 1 to the financial statements , if the company does not complete a business combination by july 29 , 2017 , then the company will cease all operations except for the purpose of winding down and liquidating . this mandatory liquidation and subsequent dissolution raises substantial doubt about the company 's ability to continue as a going concern . the financial statements do not include any adjustments that might result from the outcome of this uncertainty withumsmith+brown , pc new york , new york march 27 , 2017 f- 2 jm global holding company balance sheets replace_table_token_5_th see accompanying notes to financial statements f- 3 jm global holding company statement of operations replace_table_token_6_th see accompanying notes to financial statements f- 4 jm global holding company statement of stockholders ' equity for the period from april 10 , 2015 ( inception ) to december 31 , 2016 replace_table_token_7_th see accompanying notes to financial statements f- 5 jm global holding company statements of cash story_separator_special_tag special note regarding forward-looking statements all statements other than statements of historical fact included in this form 10-k including , without limitation , statements under “ management 's discussion and analysis of financial condition and results of operations ” regarding the company 's financial position , business strategy and the plans and objectives of management for future operations , are forward-looking statements . when used in this form 10-k , words such as “ anticipate , ” “ believe , ” “ estimate , ” “ expect , ” “ intend ” and similar expressions , as they relate to us or the company 's management , identify forward-looking statements . such forward-looking statements are based on the beliefs of management , as well as assumptions made by , and information currently available to , the company 's management . actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the sec . the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . overview we are a blank check company formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses or entities . we consummated our initial public offering on july 29 , 2015. we are currently in the process of evaluating and identifying targets for a business combination . we are evaluating acquisition opportunities and , at any given time , may be in various stages of due diligence or preliminary discussions with respect to a number of potential acquisitions . from time to time , we may enter into non-binding letters of intent , but we are currently not subject to any definitive agreement with respect to any business combination . however , we can not assure you that we will identify any suitable target candidates or , if identified , that we will be able to complete the acquisition of such candidates on favorable terms or at all . while we currently intend to consummate our initial business combination with a target business in the consumer products industry in the united states , we are not limited to a particular industry or geographic region . we intend to effectuate our initial business combination using cash from the proceeds of our initial public offering and the private placement of the placement units , our capital stock , debt or a combination of these as the consideration to be paid in our initial business combination . story_separator_special_tag we have identified the following as our critical accounting policies : concentration of credit risk financial instruments that potentially subject the company to concentration of credit risk consist of cash accounts in a financial institution which , at times may exceed the federal depository insurance coverage of $ 250,000. the company has not experienced losses on these accounts and management believes the company is not exposed to significant risks on such accounts . fair value of financial instruments the fair value of the company 's assets and liabilities , which qualify as financial instruments under fasb asc topic 820 , “ fair value measurements and disclosures , ” approximates the carrying amounts represented in the accompanying balance sheets , primarily due to their short-term nature . use of estimates the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . 40 income taxes the company complies with the accounting and reporting requirements of fasb asc topic 740 , “ income taxes , ” which requires an asset and liability approach to financial accounting and reporting for income taxes . deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts , based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established , when necessary , to reduce deferred tax assets to the amount expected to be realized . fasb asc topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return . for those benefits to be recognized , a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities . the company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense . there were no unrecognized tax benefits as of december 31 , 2016. no amounts were accrued for the payment of interest and penalties at december 31 , 2016. the company is currently not aware of any issues under review that could result in significant payments , accruals or material deviation from its position . the company is subject to income tax examinations by major taxing authorities since inception . the company may be subject to potential examination by u.s. federal , u.s. states or foreign jurisdiction authorities in the areas of income taxes . these potential examinations may include questioning the timing and amount of deductions , the nexus of income among various tax jurisdictions and compliance with u.s. federal , u.s. state and foreign tax laws . the company 's management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months . cash and cash equivalents the company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents . the company did not have any cash equivalents as of december 31 , 2016. cash and securities held in trust account at december 31 , 2016 , the assets held in the trust account were held in cash and u.s. treasury bills . deferred offering costs deferred offering costs consist of legal , underwriter and accounting fees incurred through the balance sheet date that are directly related to our initial public offering and that were charged to stockholders ' equity upon the completion of our initial public offering on july 29 , 2015. offering costs amounting to $ 1,862,816 were charged to stockholders ' equity upon completion of our initial public offering . accrued expenses and due to affiliate accrued expenses represents amounts the company owes to its vendors , for which service has been provided but the company has not paid for and state franchise tax . at december 31 , 2016 , there were approximately $ 4,000 of accrued travel expenses and $ 39,000 accrued state franchise tax in the company 's accrued expenses . due to affiliate represents entity costs and offering costs paid by an affiliate on behalf of the company . these advances are non-interest bearing , unsecured and payable on demand . redeemable common stock as discussed in note 4 , 4,000,000 of the 5,000,000 shares of common stock sold as part of the units in our initial public offering contain a redemption feature which allows for the redemption of common stock under the company 's liquidation or tender offer/stockholder approval provisions . in accordance with asc 480 , redemption provisions not solely within the control of the company require the security to be classified outside of permanent equity . ordinary liquidation events , which involve the redemption and liquidation of all of the entity 's equity instruments , are excluded from the provisions of asc 480. although the company did not specify a maximum redemption threshold , its charter provides that in no event will it redeem its public shares in an amount that would cause its net tangible assets ( stockholders ' equity ) to be less than $ 5,000,001. accordingly , at december 31 , 2016 , 4,000,000 of the 5,000,000 public shares were classified outside of permanent equity at its redemption value . 41 going concern in august 2014 , the fasb issued asu 2014-15 , “ disclosure of uncertainties about an entity 's ability to continue as a going concern ” ( “ asu 2014-15 ” ) . asu 2014-15 provides guidance on management 's responsibility in evaluating whether there is substantial doubt about a company 's ability to continue as a going concern and about related
| results of operations we have neither engaged in any operations nor generated any revenues to date . for the year ended december 31 , 2016 , we had a net loss of $ 541,616. for the period from april 10 , 2015 ( inception ) through december 31 , 2015 , we had a net loss of $ 234,205 and incurred costs of $ 1,862,816 related to our initial public offering which have been charged to stockholders ' equity . the company 's entire activity from april 10 , 2015 ( inception ) through july 29 , 2015 , was in preparation for our initial public offering , which was consummated on july 29 , 2015. since that date , we have engaged in a search for a target for a business combination . our operating costs since then include our search for an initial business combination and are largely associated with our governance and public reporting , consulting fees , and state franchise taxes of approximately $ 628,000 for the year 2016 and $ 244,000 for the year 2015. investment income of approximately $ 86,000 and $ 23,000 for the year 2016 and 2015 , respectively , represents the realized and unrealized appreciation on our investment in u.s. treasury bills since our initial public offering . we may need to raise additional capital through loans or additional investments from our sponsor , stockholders , officers , directors , or third parties . in order to fund transaction costs in connection with an intended initial business combination , our sponsor , members of our management team or their affiliates or other third parties may loan us additional amounts , provided any such loans will not have any claim on the proceeds held in the trust account unless such proceeds are released to us upon completion of an initial business combination .
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the following discussion and analysis of our financial condition and results of operations should be read in conjunction with item 6 . selected financial data of this report and our financial statements and the related notes thereto included in this report . this discussion contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results including those set forth in item 1a . risk factors of this report . see the discussion of forward-looking statements on page 1 of part i of this report . overview stamps.com® is a leading provider of internet-based mailing and shipping solutions . under the stamps.com and endicia branded solutions , our customers use our service to mail and ship a variety of mail pieces , including postcards , envelopes , flats and packages , using a wide range of united states postal service ( usps ) mail classes , including first class mail® , priority mail® , priority mail express® , media mail® , parcel select® , and others . customers using our service receive discounted postage rates compared to usps retail on certain mail pieces such as first class letters and domestic and international priority mail and priority mail express packages . our customers include individuals , small businesses , home offices , medium-size businesses and large enterprises . we were the first ever usps-licensed vendor to offer mailing and shipping in a software-only business model in 1999. we also offer multi-carrier shipping solutions under the brand names shipstation® and shipworks® . mailing and shipping business references when we refer to our mailing and shipping business , we are referring to our mailing and shipping products and services including our mailing and shipping services and integrations , mailing & shipping supplies stores , branded insurance offerings and multi-carrier services . we do not include our customized postage business when we refer to our mailing and shipping business . we have historically broken out our mailing and shipping business between core mailing and shipping and non-core mailing and shipping . we previously referred to our `` core mailing and shipping business '' as the portion of our mailing and shipping business targeting our small business , enterprise and high volume shipping customers acquired through our core mailing and shipping marketing channels which include partnerships , online advertising , direct mail , direct sales , traditional media advertising and others . we previously referred to our `` non-core mailing and shipping business '' as the portion of our mailing and shipping business that targeted a more consumer oriented customer through the online enhanced promotion marketing channel . in light of our acquisitions , including the endicia acquisition , we have concluded that the non-core mailing and shipping business is not material enough to break out separately in 2015 as it no longer provides investors with material additional insights into our business . such information is shown for previous periods below . when we refer to our mailing and shipping revenue , we are referring to our service , product and insurance revenue generated by all of our mailing and shipping customers . acquisitions on june 10 , 2014 , we acquired 100 % of the outstanding equity of auctane llc , which operates shipstation , in a cash and contingent stock transaction . shipstation , based in austin , texas , offers monthly subscription based e-commerce shipping software primarily under the brands shipstation and auctane . shipstation is a leading web-based shipping software solution that allows online retailers and e-commerce merchants to organize , process , fulfill and ship their orders quickly and easily . shipstation supports automatic order importing from over 100 shopping carts and marketplaces , including ebay , amazon , shopify , bigcommerce , volusion , squarespace and others . shipstation offers multi-carrier shipping options , and automation features like custom hierarchical rules and product profiles that allow customers to easily and automatically optimize their shipping . using shipstation , an online retailer or e-commerce merchant can ship their orders from wherever they sell and however they ship . 30 on august 29 , 2014 , we acquired 100 % of the outstanding equity of interapptive , inc. , which operates shipworks , in a cash transaction . shipworks , based in st. louis , missouri , offers monthly subscription based e-commerce shipping software that provides simple , powerful and easy to use solutions for online sellers . shipworks solutions integrate with over 65 popular online sales and marketplaces systems including ebay , paypal , amazon , yahoo ! and others . shipworks offers multi-carrier shipping options and features including sending email notifications to buyers , updating online order status , generating reports and many more . on march 22 , 2015 we entered into a stock purchase agreement ( stock purchase agreement ) with psi systems , inc. , a california corporation d/b/a endicia ( endicia ) , and newell rubbermaid inc. , a delaware corporation ( newell ) . endicia , based in palo alto , california , is a leading provider of high volume shipping technologies and solutions for shipping with the usps . the stock purchase agreement provides for our purchase of all of the issued and outstanding shares of common stock of endicia from a wholly-owned indirect subsidiary of newell ( transaction ) for an aggregate purchase price of $ 215 million in cash . the purchase price was subject to adjustment for changes in endicia 's net working capital as of the date of the closing of the transaction and certain transaction expenses and closing cash adjustments . after receiving regulatory clearance , the transaction was closed on november 18 , 2015. as part of the funding of our acquisition of endicia , we entered into a credit agreement with a group of banks on november 18 , 2015 , which provided for a term loan of $ 82.5 million and a revolving credit facility with a maximum borrowing of $ 82.5 million ( collectively , the credit agreement ) . story_separator_special_tag the 34 % increase in cost of customized postage revenue was consistent with the 33 % increase in customized postage revenue over the same time period . 34 operating expenses the following table outlines the components of our operating expense and their respective percentages of total revenue for the periods indicated ( in thousands except percentage ) : replace_table_token_11_th sales and marketing sales and marketing expense principally consists of spending to acquire new customers and compensation and related expenses for personnel engaged in sales , marketing , and business development activities . sales and marketing expense increased 29 % to $ 56.1 million in 2015 from $ 43.7 million in 2014. the increase is primarily due to ( 1 ) the addition of sales and marketing expense from our shipstation , shipworks and endicia acquisitions , ( 2 ) an increase in stock-based compensation expense and ( 3 ) an increase in sales and marketing spending and activity in our mailing and shipping business as we continued to focus on acquiring customers . our sales and marketing programs include direct sales , customer referral programs , customer re-marketing efforts , direct mail , online advertising , partnerships , telemarketing , and traditional advertising . research and development research and development expense principally consists of compensation for personnel involved in the development of our services , depreciation of equipment and software and expenditures for consulting services and third party software . research and development expense increased 56 % to $ 20.7 million in 2015 from $ 13.3 million in 2014. the increase is primarily due to ( 1 ) the addition of research and development expense from our shipstation , shipworks and endicia acquisitions and ( 2 ) an increase in headcount-related expenses including stock-based compensation expense to support our expanded product offerings and technology infrastructure investments . general and administrative general and administrative expense principally consists of compensation and related costs for executive and administrative personnel , fees for legal and other professional services , depreciation of equipment , software and building used for general corporate purposes and amortization of intangible assets . general and administrative expense increased 69 % to $ 42.4 million in 2015 from $ 25.1 million in 2014. the increase was primarily attributable to ( 1 ) the addition of general and administrative expense from our shipstation , shipworks and endicia acquisitions , ( 2 ) an increase in headcount and headcount related expenses and infrastructure investments to support the growth in our business , ( 3 ) an increase in stock-based compensation expense , ( 4 ) an increase in legal expenses for matters not related to our acquisitions , ( 5 ) expenses related to the signing of the definitive agreement to acquire endicia , ( 6 ) expenses related to the regulatory review process for our acquisition of endicia and ( 7 ) an increase in the amortization of acquired intangibles also related to our acquisitions . contingent consideration charges contingent consideration charges are attributable to the change in the fair value of our contingent consideration liability related to the acquisition of shipstation . contingent consideration charges increased 446 % 35 to $ 46.1 million in 2015 from $ 8.4 million in 2014. the increase was primarily due to the adjustment of the contingent consideration liability as a result of the former shipstation owners fully achieving all of their financial measures in accordance with the purchase agreement and an increase in our stock price . see note 3 – acquisition in our notes to consolidated financial statements for further description of our contingent consideration liability related to the acquisition of shipstation . litigation settlement on august 14 , 2014 , rapid enterprises , llc , d/b/a express one , filed suit against shipstation and some of its executives in the third judicial district court for salt lake county , utah , alleging , among other claims , that shipstation breached its contract with express one by violating an exclusivity provision . express one sought an injunction , damages , attorneys ' fees and court costs . on august 6 , 2015 , stamps.com and express one entered into a settlement agreement that resolved all disputes between the parties . stamps.com agreed to pay express one $ 10.0 million in exchange for express one 's dismissal and permanent withdrawal of express one 's tort claims . in addition , the parties agreed to continue and expand their business relationship going forward . the amount was expensed and paid in 2015. interest and other income , net interest and other income , net primarily consists of interest income from cash equivalents , short-term and long-term investments and rental income from our corporate headquarters in el segundo , california . interest and other income , net decreased to $ 146,000 in 2015 from $ 375,000 in 2014. the decrease was primarily attributable to ( 1 ) lower yields on our investment balances including certain investments in our portfolio that matured and were replaced with lower yield investments and ( 2 ) lower rental income . interest expense interest expense consists of interest expense payments from the debt under our credit facility and the associated accretion of debt issuance costs . interest expense was $ 397,000 in 2015 compared to $ 0 in 2014. the interest expense resulted from the debt incurred in connection with acquisition of endicia in 2015. see note 7 – debt in our notes to consolidated financial statements for further discussion . provision for income taxes in 2015 , our net income tax benefit of $ 1.4 million consisted of current income tax expense consisting of federal alternative minimum tax and various state taxes and deferred income tax benefit consisting of nondeductible temporary tax items including contingent consideration , stock compensation and amortizable intangibles . in addition , the deferred income tax benefit consisted of a change in the federal statutory rate from 34 % to 35 % .
| results of operations the results of our operations during the year ended december 31 , 2015 includes operations of endicia for the period from november 18 , 2015 through december 31 , 2015 and the operations of shipstation and shipworks for the full fiscal year 2015. the results of our operations during the year ended december 31 , 2014 includes operations of shipstation for the period from june 10 , 2014 through december 31 , 2014 and shipworks for the period from august 29 , 2014 through december 31 , 2014. please see note 3 – acquisitions in our notes to consolidated financial statements for further description . years ended december 31 , 2015 and 2014 total revenue increased 45 % to $ 214.0 million in 2015 from $ 147.3 million in 2014. mailing and shipping revenue , which includes service revenue , product revenue and insurance revenue , was $ 206.7 million in 2015 , an increase of 46 % from $ 141.8 million in 2014. customized postage revenue increased 33 % to $ 7.2 million in 2015 from $ 5.4 million in 2014 . 31 the following table sets forth the breakdown of revenue for 2015 and 2014 and the resulting percent change ( revenue in thousands ) : replace_table_token_6_th we define paid customers for the quarter as ones from whom we successfully collected service fees or otherwise earned revenue at least once during that quarter , and we define average paid customers for the year as the average of the paid customers for each of the four quarters during the year .
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actual events or results may differ materially from our expectations . important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include , but are not limited to , those set forth in “ item 1a . risk factors ” in this annual report . all forward-looking statements included in this annual report are based on information available to us as of the time we file this annual report and , except as required by law , we undertake no obligation to update publicly or revise any forward-looking statements . in addition , statements that “ we believe ” and similar statements reflect our beliefs and opinions on the relevant subject . these statements are based upon information available to us as of the date of this annual report , and while we believe such information forms a reasonable basis for such statements , such information may be limited or incomplete , and our statements should not be read to indicate that we have conducted an exhaustive inquiry into , or review of , all potentially available relevant information . these statements are inherently uncertain . overview and recent developments we are a biopharmaceutical company focused on delivering novel , transformational medicines with optimized pharmacology and pharmacokinetics to patients globally . our internally developed pipeline includes multiple potentially first- or best-in-class assets with broad clinical utility . our most advanced investigational clinical programs include : etrasimod , which we are evaluating in a phase 3 program for ulcerative colitis , or uc , a phase 2b/3 program for crohn 's disease , or cd , and a phase 2 program in alopecia areata , or aa . we also plan to evaluate etrasimod in a phase 3 program in atopic dermatitis , or ad , and a phase 2b program for eosinophilic esophagitis , or eoe . olorinab , which we are evaluating for a broad range of visceral pain conditions associated with gastrointestinal diseases and is currently in a phase 2b trial for treatment of abdominal pain associated with irritable bowel syndrome , or ibs . apd418 , which we are evaluating for acute heart failure , or ahf , is planning for a phase 2 trial . temanogrel , a second compound in our cardiovascular therapeutic area , which we expect to advance into a phase 2 proof of mechanism study in coronary microvascular obstruction , or cmvo . we continue to leverage our two decades of world-class g-protein-coupled receptor , or gpcr , target discovery research to develop breakthrough drugs and ultimately deliver these to patients with large unmet needs . our long-term pipeline prospects include an enhanced collaboration with beacon discovery across a broad range of immune-mediated inflammatory targets and compounds . we have license agreements or collaborations with various companies , including : united therapeutics ( ralinepag in a phase 3 program for pulmonary arterial hypertension ) , everest medicines limited ( etrasimod in a phase 3 program for uc in greater china and select countries in asia ) , beacon discovery ( early research platform for gpcr targets ) , and boehringer ingelheim international gmbh ( undisclosed orphan gpcr program for central nervous system – preclinical ) . in october 2020 , we announced the launch and $ 56.0 million financing of longboard pharmaceuticals , inc. , or longboard ( formerly known as arena neuroscience , inc. ) which is expected to focus on developing novel central nervous system , or cns , targeted assets discovered by our gpcr research engine . longboard was previously a wholly owned subsidiary of arena . as of the completion of longboard 's series a financing , our longboard founder common stock and series a preferred stock comprised approximately 33.4 % of the outstanding shares of capital stock of longboard . we have licensed certain development and worldwide commercialization rights to longboard and are entitled to receive royalties on potential sales of lp352 , lp143 and lp659 , in the future . as longboard continues to progress , it may seek additional capital to fund its future operating needs and may pursue various financing alternatives , like issuing shares of its stock in private or public financings , issuing debt instruments , or securing lines of credit . longboard may also consider entering into collaborations related to its pipeline to provide for additional operating cash . in addition , we entered into a separate services agreement with longboard , pursuant to which we agreed to perform certain research and development services , general and administrative services , management services and other mutually agreed services for longboard 56 and receive service fees . our investment is accounted for as an equity method investment , and the investee , longboard , is considered a related party . to limit the spread of covid-19 , governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines , causing some businesses to suspend operations and a reduction in demand for many products from direct or ultimate customers . accordingly , many businesses have adjusted , reduced or suspended operating activities . the impact of this pandemic has been and will likely continue to be extensive in many aspects of society , which has resulted in and will likely continue to result in significant disruptions to businesses and capital markets around the world . the extent to which covid-19 impacts us will depend on future developments , which are highly uncertain and can not be predicted , including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact , among others . beginning the week of march 16 , 2020 , substantially all of our workforce began working from home , either all or substantially all of the time . in addition , we have experienced delays in site initiation and participant enrollment and screening rates in certain of our clinical development programs as a result of the covid-19 pandemic . story_separator_special_tag we plan to expand our current development program to rapidly develop etrasimod cr and integrate it into multiple , ongoing clinical development programs . in january 2020 , we announced acceptance of our investigational new drug application and were granted fast track designation for apd418 . collaborations and license agreements update . in october 2020 , we entered into a license agreement with longboard under which we licensed to longboard certain development and worldwide commercialization rights and are entitled to receive royalties on potential sales of lp352 , lp143 and lp659 , in the future . we also entered into a royalty purchase agreement with longboard pursuant to which longboard purchased from us the right to receive all milestone payments , royalties , interest and other payments relating to net sales of lorcaserin owed or otherwise payable by eisai . in january 2020 , we entered into a new multi-year strategic collaboration and license agreement with beacon , aimed at building novel medicines across a range of gpcr targets believed to play a role in immune and inflammatory diseases . under the terms of this agreement , beacon is responsible for early drug discovery activities and arena will be responsible for any potential future development and , ultimately , commercialization activities . we are required to pay to beacon research initiation fees , make quarterly research funding payments for the duration of beacon 's research activities as well as research , development and regulatory milestone payments . we are also obligated to pay beacon tiered royalties on net sales of low single digits levels . other corporate events . in june 2020 , we completed the sale of an aggregate of 6,325,000 shares of our common stock in an underwritten public offering . net proceeds from the offering were approximately $ 301.8 million after deducting underwriting discounts and commissions and offering expenses payable by us . we anticipate using the net proceeds from the offering for the clinical and preclinical development of drug candidates and for general corporate purposes , including working capital and capital expenditures . in february 2020 , we entered into a sales agreement , or the sales agreement , with credit suisse securities ( usa ) llc , svb leerink llc and cantor fitzgerald & co. , as sales agents ( collectively , the “ sales agents ” ) , pursuant to which we may offer and sell up to $ 250.0 million of shares of our common stock from time to time through the sales agents . sales of shares of our common stock may be made at market prices by any method deemed to be an “ at-the-market offering ” as defined in rule 415 ( a ) ( 4 ) under the securities act of 1933 , as amended . we are not obligated to sell any shares under the sales agreement . each of the sales agents has agreed to use its commercially reasonable efforts to sell on our behalf all of the shares of common stock requested to be sold by us , consistent with its normal trading and sales practices , on mutually agreed terms among the sales agents and us . we did not make any sales of our common stock under the sales agreement during the year ended december 31 , 2020. from january 1 , 2021 through the date of this report , we have sold an aggregate of 1.2 million shares under the sales agreement for gross proceeds of $ 100.6 million . see the above “ business ” section for a more complete discussion of our business . 58 story_separator_special_tag style= '' text-align : left ; margin-bottom:0pt ; margin-top:6pt ; font-weight : normal ; font-style : normal ; color : # auto ; font-size:10pt ; font-family : 'times new roman ' ; text-transform : none ; font-variant : normal ; letter-spacing:0pt ; '' > $ 25.8 million related to olorinab . included in the $ 141.1 million of total external clinical and preclinical study fees noted in the table above in this section for the year ended december 31 , 2019 , were the following : $ 108.6 million related to etrasimod , and $ 17.8 million related to olorinab . cumulatively from our inception through december 31 , 2020 , we have recognized ( i ) external clinical and preclinical study fees of $ 307.8 million for lorcaserin , $ 365.1 million for etrasimod , $ 64.1 million for ralinepag , $ 43.8 million for nelotanserin , $ 57.7 million for olorinab and $ 18.8 million for temanogrel and ( ii ) $ 53.2 million for non-commercial manufacturing and other development costs for lorcaserin and , to a lesser extent , nelotanserin . expenditures on current and future clinical development programs are expected to be substantial and subject to many uncertainties , which include having adequate funding and developing our drug candidates independently or with collaborators . as a result of such uncertainties , we can not predict with any significant degree of certainty the duration and completion costs of our research and development projects or whether , when and to what extent we will generate revenues from the commercialization and sale of any of our drug candidates . the duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during clinical development and a variety of factors , including : the nature and number of trials and studies in a clinical program ; the potential therapeutic indication ; the number of patients who participate in the trials ; the number and location of sites included in the trials ; the rates of patient recruitment , enrollment and withdrawal ; the duration of patient treatment and follow-up ; the costs of manufacturing drug candidates ; and the costs , requirements , timing of , and the ability to secure and maintain regulatory approvals . selling , general and administrative expenses .
| results of operations we are providing the following summary of our revenues , research and development expenses and selling , general and administrative expenses to supplement the more detailed discussion below . the dollar values in the following tables are in millions . for our discussion of the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , please read item 7. management 's discussion and analysis of financial condition and results of operations located in our annual report on form 10-k for the year ended december 31 , 2019 , as filed with the sec on february 27 , 2020. research and development expenses replace_table_token_3_th selling , general and administrative expenses replace_table_token_4_th year ended december 31 , 2020 , compared to year ended december 31 , 2019 revenues . we recognized revenues of $ 0.3 million for the year ended december 31 , 2020 , compared to $ 806.4 million for the year ended december 31 , 2019. the decrease resulted primarily from revenue associated with the upfront payment of $ 800.0 million we received in january 2019 pursuant to an exclusive license agreement with united therapeutics . in connection with the united therapeutics transaction , during the first quarter of 2019 , we incurred transaction expenses of $ 14.6 million , which are presented as transaction costs in our consolidated statement of operations for the year ended december 31 , 2019 . absent any new collaborations , we expect our 2021 revenues will primarily consist of potential milestone payments from our existing collaborations and license agreements . revenues from milestones and royalties are difficult to predict , and our overall revenues will likely continue to vary from quarter to quarter and year to year . in the short term , we expect the amount of revenue we earn to fluctuate . research and development expenses .
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the discovery phase of the 2010 agreement was scheduled to expire in april 2014 , subject to celgene 's option to extend the discovery phase for up to an additional two years with additional funding to the company . in december 2013 , celgene elected to extend the term of the initial discovery phase from four years to five years , to april 2015 , in exchange for the payment of a $ 20.0 million extension fee which was received in story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the risk factors section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biopharmaceutical company committed to applying our scientific leadership in the field of cellular metabolism to transform the lives of patients with cancer and rare genetic metabolic disorders , or rgds , which are a subset of orphan genetic metabolic diseases . metabolism is a complex biological process involving the uptake and assimilation of nutrients in cells to produce energy and facilitate many of the processes required for cellular division and growth . we focus our efforts on using cellular metabolism , an unexploited area of biological research with disruptive potential , as a platform for developing potentially transformative small molecule medicines . our most advanced cancer product candidates are ag-221 and ag-120 , which target mutated isocitrate dehydrogenase 2 and 1 , or idh2 and idh1 , respectively , and ag-881 , which targets both mutated idh1 and mutated idh2 . these mutations are found in a wide range of hematological malignancies and solid tumors . the lead product candidate in our rgd programs , ag-348 , targets pyruvate kinase-r for the treatment of pyruvate kinase deficiency . pyruvate kinase deficiency is a rare disorder that often results in severe hemolytic anemia due to inherited mutations in the pyruvate kinase enzyme within red blood cells . in april 2010 , we entered into a discovery and development collaboration and license agreement , or the 2010 agreement , with celgene corporation , or celgene , focused on targeting cancer metabolism . the goal of the collaboration under the 2010 agreement is to discover , develop and commercialize disease-altering therapies in oncology arising out of our cancer metabolism research platform that have achieved development candidate status . on december 8 , 2014 , celgene elected to extend the period of its exclusivity for an additional year to april 2016. the extension marks the final year of the discovery phase and celgene will maintain its exclusive option to certain drug candidates that emerge from our cancer metabolism research platform through april 2016. we received a $ 20.0 million payment as a result of the extension in may 2015. under the terms of the 2010 agreement , we lead research , preclinical and early development efforts through phase 1 , while celgene received an option to obtain exclusive rights either upon investigational new drug application , or ind , acceptance or at the end of phase 1 to further develop and commercialize medicines emerging from our cancer metabolism research . celgene would lead and fund global development and commercialization of development candidates for which it exercises its option to obtain a co-commercialization license , and we would retain development and commercialization rights in the united states for development candidates for which we exercise our option to retain a split license . on all programs under the 2010 agreement for which celgene exercises its option , we are eligible to receive up to $ 120.0 million in milestone-based payments as well as royalties on any sales . we nominated ag-221 and ag-120 during the discovery phase of the collaboration under the 2010 agreement . in june 2014 , celgene exercised its exclusive option to license ag-221 and gained worldwide development and commercialization rights for ag-221 . in addition to contributing our scientific and translational expertise , we continue to conduct certain clinical development and regulatory activities within the ag-221 development program while transitioning responsibilities to celgene , which will lead later development activities . celgene exercised its exclusive option to license development and commercialization rights to ag-120 outside the united states during the three months ended march 31 , 2015. we retain u.s. development and commercialization rights for ag-120 . 79 during april 2015 , we selected a third novel idh mutant inhibitor , ag-881 , for clinical development . on april 27 , 2015 , we entered into a joint worldwide development and profit share collaboration and license agreement with celgene and our wholly owned subsidiary , agios international sarl , which was organized in switzerland in april 2015 , entered into a collaboration and license agreement with celgene international ii sarl . we refer to these agreements collectively as the ag-881 agreements . the ag-881 agreements establish a worldwide collaboration focused on the development and commercialization of ag-881 products . under the terms of the ag-881 agreements , we received initial upfront payments totaling $ 10.0 million in may 2015 and are eligible to receive up to $ 70.0 million in milestone-based payments . we and celgene will equally split all worldwide development costs , subject to specified exceptions , as well as any profits from any net sales of , or commercialization losses related to , licensed ag-881 products . story_separator_special_tag research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our drug discovery efforts , and the development of our product candidates , which include : employee-related expenses including salaries , benefits and stock-based compensation expense ; expenses incurred under agreements with third parties , including contract research organizations , or cros , that conduct research and development and both preclinical and clinical activities on our behalf and the cost of consultants ; the cost of lab supplies and acquiring , developing and manufacturing preclinical and clinical study materials ; and facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other operating costs . research and development costs are expensed as incurred . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . reimbursements received from celgene for certain third-party and internal costs for which we are not the principal in the transaction according to the provisions of asc 605-45 are recorded as a reduction to research and development expense . 81 the following summarizes our most advanced current research and development programs . ag-221 : lead idh2 program ag-221 is an orally available , selective , potent inhibitor of the mutated idh2 protein , making it a highly targeted therapeutic candidate for the treatment of patients with cancers that harbor idh2 mutations , including those with acute myeloid leukemia , or aml , who have a historically poor prognosis . on june 16 , 2014 , the u.s. food and drug administration , or fda , granted us orphan drug designation for ag-221 for treatment of patients with aml . on august 13 , 2014 , we announced that the fda granted fast track designation to ag-221 for treatment of patients with aml that harbor an idh2 mutation . we have been evaluating ag-221 in several phase 1 dose-escalation clinical trials evaluating both hematological and solid tumor cancers with idh2 mutations . to date , all clinical data reported by us in hematological cancers highlights that the mechanism of response is consistent with preclinical studies , including substantial reduction of plasma 2-hydroxygluturate , or 2hg , levels , as well as evidence of cellular differentiation and normalization of cell counts in the bone marrow and blood . this differentiation effect is distinct from that seen with traditional chemotherapeutics commonly used to treat aml . in june 2014 , celgene exercised its option to an exclusive global license for development and commercialization of ag-221 under the 2010 agreement . under the 2010 agreement , celgene is responsible for all development costs for ag-221 . we are eligible to receive up to $ 120.0 million in milestone payments and a tiered royalty on any net sales of products containing ag-221 . in january 2016 , in conjunction with the initiation of ag-221 phase 3 trials we received a milestone payment of $ 25.0 million . we also have the right to conduct a portion of any commercialization activities for ag-221 in the united states . in addition to contributing our scientific and translational expertise , we will continue to conduct some clinical development and regulatory activities within the ag-221 development program in collaboration with celgene . ag-120 : lead idh1 program ag-120 is an orally available , selective , potent inhibitor of the mutated idh1 protein , making it a highly targeted therapeutic candidate for the treatment of patients with cancers that harbor idh1 mutations . mutations in idh1 have been identified in difficult to treat hematologic and solid tumor cancers , including aml , chondrosarcoma and cholangiocarcinoma where both the treatment options and prognosis for patients are poor . in march 2014 , we initiated two phase 1 , multicenter , open-label , dose-escalation and expansion clinical trials for ag-120 , one designed to assess the safety , clinical activity and tolerability of ag-120 as a single agent in patients with advanced hematologic malignancies and the second designed to evaluate the safety , clinical activity and tolerability of ag-120 in patients with advanced solid tumors . both trials are only enrolling patients that carry an idh1 mutation . on may 18 , 2015 , we announced that the fda granted fast track designation to ag-120 for treatment of patients with aml that harbor an idh1 mutation . on june 10 , 2015 , the fda granted us orphan drug designation for ag-120 for treatment of patients with aml . celgene exercised its exclusive option to license development and commercialization rights to ag-120 outside the united states during the three months ended march 31 , 2015. we had previously elected to exercise our option to retain development and commercialization rights to ag-120 in the united states in january 2014. upon celgene 's exercise of its exclusive option under the terms of our 2010 agreement , celgene leads development and commercialization outside the united states , and we lead development and commercialization in the united states . celgene is responsible for future development and commercialization costs specific to countries outside the united states , we are responsible for future development and commercialization costs specific to the united states , and we and celgene will equally fund the future global development costs of ag-120 that are not specific to any particular region or country . celgene is eligible to receive tiered royalties on any net sales in the united states . we are eligible to receive tiered royalties on any net sales outside the united states and up to $ 120.0 million in payments on achievement of certain milestones . we are also eligible to receive an additional one-time payment of $ 25.0 million upon the dosing of the last patient in an agios-sponsored phase 2 clinical trial for ag-120 .
| general and administrative expense . the increase in general and administrative expense was primarily attributable to the following : an increase of $ 5.2 million in personnel costs related to an increase in our internal headcount of 43 % , which includes an increase of $ 3.8 million for stock-based compensation expense primarily due to an increase in our stock price and our overall headcount ; an increase of $ 2.1 million in professional service costs and insurance costs ; and an increase of $ 1.9 million in certain operating expenses , including travel and facility costs . interest income . the increase is attributable to interest earned on the net proceeds from our ipo in july 2013 and our follow-on offerings of common stock in april 2014 and december 2014 . ( benefit ) provision for income taxes . in january 2014 , we paid $ 6.0 million as payment in full of our u.s. federal income tax liability related to the year ended december 31 , 2011 , including $ 1.5 million of interest and penalties accrued . the increase in our benefit for income taxes for the year ended december 31 , 2014 was attributable to an abatement received in august 2014 from the internal revenue service of $ 0.4 million related to penalties previously paid . for the year ended december 31 , 2013 , the provision for income taxes was primarily attributable to penalties and interest accrued for the non-payment of u.s. federal income taxes on the 2011 u.s. federal income tax liability .
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estimated amortization expense for the next five years is as follows : replace_table_token_15_th note 4securities available for sale pursuant to our investment policy , securities available for sale include state and municipal securities with various contractual or anticipated maturity dates ranging from one month to three years . these securities are carried at fair value , with unrealized gains and losses reported as a component of accumulated other comprehensive income ( loss ) , net of taxes in shareholders ' equity until realized . realized gains and losses from the sale of available for sale securities , if any , are determined on a specific identification basis . a decline in the fair value of any available for sale security below cost that is determined to be other than temporary will result in a write-down of its carrying amount to fair value . no such impairment charges were recorded for any period presented . all short-term investment securities have original maturities greater than 90 days . 44 the fair value , amortized cost and gross unrealized gains and losses of the securities are as follows : replace_table_token_16_th the contractual maturity dates of these securities are as follows : replace_table_token_17_th actual maturities may differ from contractual dates as a result of sales or earlier issuer redemptions . note 5inventories the components of inventories are as follows : replace_table_token_18_th included within finished goods inventory is $ 1,354,000 and $ 1,030,000 of demonstration equipment at january 31 , 2016 and 2015 , respectively . note 6accrued expenses accrued expenses consisted of the following : replace_table_token_19_th 45 note 7line of credit astro-med has a $ 10 million revolving line of credit available to be used as needed for ongoing working capital requirements , business acquisitions or general corporate purposes . any borrowings made under the line of credit bear interest at either a fluctuating base rate equal to the highest of ( i ) the prime rate , ( ii ) 1.50 % above the daily one month libor , and ( iii ) the federal funds rate in effect plus 1.50 % or at a fixed rate of libor plus an agreed upon margin of between 0 % and 2.25 % , based on the company 's funded debt to ebitda ratio as defined in the agreement . in addition , the agreement provides for two financial covenant requirements , story_separator_special_tag overview astro-med is a multi-national enterprise that leverages its proprietary data visualization technologies to design , develop , manufacture , distribute and service a broad range of products that acquire , store , analyze and present data in multiple formats . the company organizes its structure around a core set of competencies , including research and development , manufacturing , service , marketing and distribution . it markets and sells its products and services through the following two sales product groups : quicklabel product group offers product identification and label printer hardware , software , servicing contracts , and consumable products . test and measurement product group ( t & m ) offers a suite of products and services that acquire and record visual and electronic signal data from local and networked data stream and sensors as well as wired and wireless networks . the recorded data is processed and analyzed and then stored and presented in various visual output formats . the t & m segment also includes a line of aerospace printers that are used to print hard copies of data required for the safe and efficient operation of aircraft including navigation maps , arrival and departure procedures , flight itineraries , weather maps , performance data , passenger data , and various air traffic control data . aerospace products also include ethernet switches which are used in military aircraft and military vehicles to connect multiple computers or ethernet devices . astro-med markets and sells its products and services globally through a diverse distribution structure of direct sales personnel , manufacturers ' representatives and authorized dealers that deliver a full complement of branded products and services to customers in our respective markets . our growth strategy centers on organic growth through product innovation made possible by research and development initiatives , as well as strategic acquisitions that fit into existing core businesses . research and development activities were funded and expensed by the company at approximately 7.3 % of annual sales for fiscal 2016. we also continue to invest in sales and marketing initiatives by expanding the existing sales force and using various marketing campaigns to achieve our goals of sales growth and increased profitability notwithstanding today 's challenging economic environment . on june 19 , 2015 , astro-med completed the asset purchase of the aerospace printer product line from ritec . astro-med 's aerospace printer product line is part of the t & m product group and is reported as part of the t & m segment . the company began shipment of the ritec products in the third quarter of the current fiscal year . refer to note 2 , acquisition , in the audited consolidated financial statements included elsewhere in this report . 16 on september 25 , 2015 , the company announced it would immediately begin doing business as astronova on a worldwide basis . the name change is part of the plan to modernize the company and effectively communicate our strategy . the astronova name and brand emphasizes our traditional strengths in aerospace and acknowledges our expanding presence in test & measurement , product identification and other new areas where we can apply our data visualization technology . astro-med 's aerospace products and test & measurement business will adopt the astronova brand . quicklabel products will continue to go to market under the quicklabel brand . story_separator_special_tag sales of $ 59,779,000 in the prior year . story_separator_special_tag at january 31 , 2016 , the company 's board of directors has authorized the purchase of an additional 390,000 shares of the company 's common stock in the future . contractual obligations , commitments and contingencies astro-med is subject to contingencies , including legal proceedings and claims arising out of its businesses that cover a wide range of matters , such as : contract and employment claims ; workers compensation claims ; product liability claims ; warranty claims ; and claims related to modification , adjustment or replacement of component parts of units sold . while it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities , including lawsuits , we believe that the aggregate amount of such liabilities , if any , in excess of amounts provided or covered by insurance , will not have a material adverse effect on our consolidated financial position or results of operations . it is possible , however , that results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of the company 's control . critical accounting policies and estimates astro-med 's discussion and analysis of financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . certain of our accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty . we periodically evaluate the judgments and estimates used for our critical accounting policies to ensure that such judgments and estimates are reasonable for our interim and year-end reporting requirements . these judgments and estimates are based on the company 's 20 historical experience , current trends and information available from other sources , as appropriate . if different conditions result from those assumptions used in our judgments , the results could be materially different from our estimates . we believe the following critical accounting policies require significant judgments and estimates in the preparation of our consolidated financial statements : revenue recognition : our product sales are recognized when all of the following criteria have been met : persuasive evidence of an arrangement exists ; price to the buyer is fixed or determinable ; delivery has occurred and legal title and risk of loss have passed to the customer ; and collectability is reasonably assured . when other significant obligations remain after products are delivered , revenue is recognized only after such obligations are fulfilled . returns and customer credits are infrequent and are recorded as a reduction to sales . rights of return are not included in sales arrangements . revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied . when a sale arrangement involves training or installation , the deliverables in the arrangement are evaluated to determine whether they represent multiple element arrangements . this evaluation occurs at inception of the arrangement and as each item in the arrangement is delivered . the total fee from the arrangement is allocated to each unit of accounting based on its relative fair value . fair value for each element is established generally based on the sales price charged when the same or similar element is sold separately . we allocate revenue to each element in our multiple-element arrangements based upon their relative selling prices . we determine the selling price for each deliverable based on a selling price hierarchy . the selling price for a deliverable is based on our vendor specific objective evidence ( vsoe ) if available , third-party evidence ( tpe ) if vsoe is not available , or estimated selling price ( esp ) if neither vsoe nor tpe is available . revenue allocated to each element is then recognized when the basic revenue recognition criteria for that element have been met . the amount of product revenue recognized is affected by our judgments as to whether an arrangement includes multiple elements . astro-med recognizes revenue for non-recurring engineering ( nre ) fees , as necessary , for product modification orders upon completion of agreed-upon milestones . revenue is deferred for any amounts received prior to completion of milestones . certain of our nre arrangements include formal customer acceptance provisions . in such cases , we determine whether we have obtained customer acceptance for the specific milestone before recognizing revenue . infrequently , the company receives requests from customers to hold product being purchased from us for the customers ' convenience . we recognize revenue for such bill and hold arrangements provided the transaction meets the following criteria : a valid business purpose for the arrangement exists ; risk of ownership of the purchased product has transferred to the buyer ; there is a fixed delivery date that is reasonable and consistent with the buyer 's business purpose ; the product is ready for shipment ; the payment terms are customary ; we have no continuing performance obligation in regards to the product ; and the product has been segregated from our inventories . the majority of our equipment contains embedded operating systems and data management software which is included in the purchase price of the equipment . the software is deemed incidental to the systems as a whole as it is not sold separately or marketed separately and its production costs are minor as compared to those of the hardware system . therefore , the company 's hardware appliances are considered non-software elements and are not subject to the industry-specific software revenue recognition guidance .
| results of operations the following table presents the net sales of each of the company 's segments , as well as the percentage of total sales and change from prior year . replace_table_token_5_th fiscal 2016 compared to fiscal 2015 astro-med 's net sales in fiscal 2016 were $ 94,658,000 , a 7.1 % increase as compared to prior year sales of $ 88,347,000. domestic sales of $ 68,316,000 increased 11.1 % from the prior year sales of $ 61,494,000. international sales of $ 26,342,000 reflect a 1.9 % decrease as compared to prior year sales of $ 26,853,000. the current year 's international sales include an unfavorable foreign exchange rate impact of $ 3,022,000. hardware sales in fiscal 2016 were $ 34,824,000 , a 10.0 % decrease compared to prior year 's sales of $ 38,685,000. hardware sales in both the t & m and quicklabel segments contributed to the lower volume of hardware shipments . current year t & m hardware sales decreased 8.9 % as compared to the prior year attributable to the decline in sales of aerospace printers , as many customers are deferring the shipments of orders to later periods , and the decline in data recorder sales due to the company 's delay in the release of a new product . quicklabel hardware sales declined 11.9 % as compared to the prior year , primarily as a result of lower oem monochrome and other color printer sales . these declines in hardware sales were slightly offset by increases in sales of t & m 's data acquisition product line , as well as an increase in sales of the kiaro ! series printers in the quicklabel product group .
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in addition , any efforts to reduce costs , or to defer or cancel capital improvements , could adversely affect the economic value of our hotels . we have taken steps to reduce our fixed costs to levels we believe are appropriate to maximize profitability and respond to market conditions without jeopardizing the overall customer experience or the value of our hotels . changes in depreciation and amortization expense . changes in depreciation expense are due to renovations of existing hotels , acquisition or development of new hotels , the disposition of existing hotels through sale or closure or changes in estimates of the useful lives of our assets . as we incur additions to our hotels or place new assets into service , we will be required to recognize additional depreciation expense on those assets . 54 age . as hotels age , maintenance expense tends to increase . these expenses include more frequent and higher costing repairs , higher utility expenses , increased supplies and higher labor cos ts . if these costs result in capitalized improvements , depreciation expense could increase over time as discussed above . for other factors affecting our costs and expenses , see “ risk factors—risks related to our business and industry. ” key indicators of financial condition and operating performance we use a variety of financial and other information in monitoring the financial condition and operating performance of our business . some of this information is financial information that is prepared in accordance with gaap , while other information may be financial in nature and may not be prepared in accordance with gaap . our management also uses other information that may not be financial in nature , including statistical information and comparative data that are commonly used within the lodging industry to evaluate hotel financial and operating performance . our management uses this information to measure the performance of hotel properties and or our business as a whole . historical information is periodically compared to budgets , as well as against industry-wide information . we use this information for planning and monitoring our business , as well as in determining management and employee compensation . average daily rate ( “ adr ” ) represents hotel room revenues divided by total number of rooms rented in a given period . adr measures the average room price attained by a hotel or group of hotels , and adr trends provide useful information concerning pricing policies and the nature of the guest base of a hotel or group of hotels . changes in room rates have an impact on overall revenues and profitability . occupancy represents the total number of rooms rented in a given period divided by the total number of rooms available at a hotel or group of hotels . occupancy measures the utilization of our hotels ' available capacity , which may be affected from time to time by our repositioning , property casualties and other activities . management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period . occupancy levels also help us determine achievable adr levels as demand for hotel rooms increases or decreases . revenue per available room ( “ revpar ” ) is defined as the product of the adr charged and the average daily occupancy achieved . revpar does not include other ancillary , non-room revenues , such as food and beverage revenues or parking , telephone or other guest service revenues generated by a hotel , which are not significant for the company . revpar changes that are driven predominately by occupancy have different implications for overall revenue levels and incremental hotel operating profit than changes driven predominately by adr . for example , increases in occupancy at a hotel would lead to increases in room and other revenues , as well as incremental operating costs ( including , but not limited to , housekeeping services , utilities and room amenity costs ) . revpar increases due to higher adr , however , would generally not result in additional operating costs , with the exception of those charged or incurred as a percentage of revenue , such as management and royalty fees , credit card fees and commissions . as a result , changes in revpar driven by increases or decreases in adr generally have a greater effect on operating profitability at our hotels than changes in revpar driven by occupancy levels . due to seasonality in our business , we review revpar by comparing current periods to budget and period-over-period . comparable hotels are defined as hotels that were active and operating in our system for at least one full calendar year as of the end of the applicable reporting period and were active and operating as of january 1st of the previous year ; except for : ( i ) hotels that sustained substantial property damage or other business interruption , ( ii ) hotels that become subject to a purchase and sale agreement , or ( iii ) hotels in which comparable results are otherwise not available . management uses comparable hotels as the basis upon which to evaluate adr , occupancy and revpar . we report variances in adr , occupancy and revpar between periods for the set of comparable hotels existing at the reporting date versus the results of same set of hotels in the prior period . of our 315 hotels as of december 31 , 2018 , 304 have been classified as comparable hotels . non-gaap financial measures we also evaluate the performance of our business through certain other financial measures that are not recognized under gaap . each of these non-gaap financial measures should be considered by investors as supplemental measures to gaap performance measures such as total revenues , operating profit and net income . these measurements are not to be considered more relevant or accurate than the measurements presented in accordance with gaap . in compliance with story_separator_special_tag in addition , any efforts to reduce costs , or to defer or cancel capital improvements , could adversely affect the economic value of our hotels . we have taken steps to reduce our fixed costs to levels we believe are appropriate to maximize profitability and respond to market conditions without jeopardizing the overall customer experience or the value of our hotels . changes in depreciation and amortization expense . changes in depreciation expense are due to renovations of existing hotels , acquisition or development of new hotels , the disposition of existing hotels through sale or closure or changes in estimates of the useful lives of our assets . as we incur additions to our hotels or place new assets into service , we will be required to recognize additional depreciation expense on those assets . 54 age . as hotels age , maintenance expense tends to increase . these expenses include more frequent and higher costing repairs , higher utility expenses , increased supplies and higher labor cos ts . if these costs result in capitalized improvements , depreciation expense could increase over time as discussed above . for other factors affecting our costs and expenses , see “ risk factors—risks related to our business and industry. ” key indicators of financial condition and operating performance we use a variety of financial and other information in monitoring the financial condition and operating performance of our business . some of this information is financial information that is prepared in accordance with gaap , while other information may be financial in nature and may not be prepared in accordance with gaap . our management also uses other information that may not be financial in nature , including statistical information and comparative data that are commonly used within the lodging industry to evaluate hotel financial and operating performance . our management uses this information to measure the performance of hotel properties and or our business as a whole . historical information is periodically compared to budgets , as well as against industry-wide information . we use this information for planning and monitoring our business , as well as in determining management and employee compensation . average daily rate ( “ adr ” ) represents hotel room revenues divided by total number of rooms rented in a given period . adr measures the average room price attained by a hotel or group of hotels , and adr trends provide useful information concerning pricing policies and the nature of the guest base of a hotel or group of hotels . changes in room rates have an impact on overall revenues and profitability . occupancy represents the total number of rooms rented in a given period divided by the total number of rooms available at a hotel or group of hotels . occupancy measures the utilization of our hotels ' available capacity , which may be affected from time to time by our repositioning , property casualties and other activities . management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period . occupancy levels also help us determine achievable adr levels as demand for hotel rooms increases or decreases . revenue per available room ( “ revpar ” ) is defined as the product of the adr charged and the average daily occupancy achieved . revpar does not include other ancillary , non-room revenues , such as food and beverage revenues or parking , telephone or other guest service revenues generated by a hotel , which are not significant for the company . revpar changes that are driven predominately by occupancy have different implications for overall revenue levels and incremental hotel operating profit than changes driven predominately by adr . for example , increases in occupancy at a hotel would lead to increases in room and other revenues , as well as incremental operating costs ( including , but not limited to , housekeeping services , utilities and room amenity costs ) . revpar increases due to higher adr , however , would generally not result in additional operating costs , with the exception of those charged or incurred as a percentage of revenue , such as management and royalty fees , credit card fees and commissions . as a result , changes in revpar driven by increases or decreases in adr generally have a greater effect on operating profitability at our hotels than changes in revpar driven by occupancy levels . due to seasonality in our business , we review revpar by comparing current periods to budget and period-over-period . comparable hotels are defined as hotels that were active and operating in our system for at least one full calendar year as of the end of the applicable reporting period and were active and operating as of january 1st of the previous year ; except for : ( i ) hotels that sustained substantial property damage or other business interruption , ( ii ) hotels that become subject to a purchase and sale agreement , or ( iii ) hotels in which comparable results are otherwise not available . management uses comparable hotels as the basis upon which to evaluate adr , occupancy and revpar . we report variances in adr , occupancy and revpar between periods for the set of comparable hotels existing at the reporting date versus the results of same set of hotels in the prior period . of our 315 hotels as of december 31 , 2018 , 304 have been classified as comparable hotels . non-gaap financial measures we also evaluate the performance of our business through certain other financial measures that are not recognized under gaap . each of these non-gaap financial measures should be considered by investors as supplemental measures to gaap performance measures such as total revenues , operating profit and net income . these measurements are not to be considered more relevant or accurate than the measurements presented in accordance with gaap . in compliance with
| results of operations overview for the year ended december 31 , 2018 , we reported a loss from continuing operations before income taxes of $ 216 million , compared to income from continuing operations before income taxes of $ 44 million in 2017 , a decrease of $ 260 million . the decrease was primarily due to increased impairment loss of $ 153 million and increased management and royalty fees and corporate general and administrative expenses related to our spin-off of approximately $ 61 million , only partially offset by increased revenues of $ 26 million . during 2018 , we re cognized impairment losses of $ 154 million compared to $ 1 million in 2017. our 2018 impairment losses were primarily due to a strategic review of our hotels and their operations which resulted in shortened holding periods for many of our hotels . in connection with our spin-off , we entered into new franchise and management agreements effective may 30 , 2018 , incurring $ 52 million of management and royalty fee expenses during the remaining portion of 2018. also related to the spin-off , we incurred certain reorganization expenses , including expenses related to becoming a stand-alone nyse-listed reit , of approximately $ 44 million . we would expect the transition related expenses to decrease for 2019 , but as our franchise , management and public reit expenses were only for a partial year , would expect a larger increase in expenses during the full year of 2019 . 58 our reported revenue was primarily driven by our occupancy , adr and revpar metrics , our capital initiatives and storm related operations as repairs were completed . for the year ended december 31 , 2018 , occupancy at our comparable hotels was 65.5 % , an increase of 60 basis points from the year ended december 31 , 2017 of 64.9 % .
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the impact of the related amendments will include , for all periods presented , ( a ) a reclassification of contingent consideration payments made after business combinations by decreasing net cash used in investing activities and increasing net cash used in financing story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and the related notes . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include , but are not limited to , those discussed below and those listed under “ risks factors. ” executive level overview trimble inc. is a leading provider of technology solutions that optimize the work processes of office and mobile field professionals around the world . our comprehensive work process solutions are used across a range of industries including agriculture , architecture , civil engineering , construction , government , natural resources , transportation and utilities . representative trimble customers include engineering and construction firms , contractors , surveying companies , farmers and agricultural companies , transportation and logistics companies , energy , utility companies , and state , federal and municipal governments . trimble focuses on integrating its broad technological and application capabilities to create vertically-focused , system-level solutions that transform how work is done within the industries we serve . the integration of sensors , software , connectivity , and information in our portfolio gives us the unique ability to provide an information model specific to the customer 's workflow . for example , in construction , our strategy is centered on the concept of a “ constructible model ” which is at the center of our “ connected site ” solutions which provide real-time , connected , and cohesive information environments for the design , build , and operational phases of construction projects . in agriculture , we continue to develop “ connected farm ” solutions to optimize operations across the agriculture workflow . in transportation and logistics , our “ connected fleet ” solutions provide transportation companies with tools to enhance fuel efficiency , safety , and transparency through connected vehicles and fleets across the enterprise . our growth strategy is centered on multiple elements : focus on attractive markets with significant growth and profitability potential - we focus on large markets historically underserved by technology that offer significant potential for long-term revenue growth , profitability and market leadership . our core industries such as construction , agriculture , and transportation markets are each multi-trillion dollar global industries which operate in increasingly demanding environments with technology adoption in the early phases relative to other industries . with the emergence of mobile computing capabilities , the increasing technological know-how of end users and the compelling return on investment to our customers , we believe many of our markets are attractive for substituting trimble 's technology and solutions in place of traditional operating methods . domain knowledge and technological innovation that benefit a diverse customer base - we have over time redefined our technological focus from hardware-driven point solutions to integrated work process solutions by developing domain expertise and heavily reinvesting in r & d and acquisitions . we have been spending approximately 14 % to 15 % of revenue over the past several years on r & d and currently have over 1,200 unique patents . we intend to continue to take advantage of our technology portfolio and deep domain knowledge to quickly and cost-effectively deliver specific , targeted solutions to each of the vertical markets we serve . we look for opportunities where the opportunity for technological change is high and which have a requirement for the integration of multiple technologies into complete vertical solutions . increasing focus on software and services - software and services targeted for the needs of vertical end markets are increasingly important elements of our solutions and are core to our growth strategy . trimble has an open application programming interface philosophy and open vendor environment which leads to increased adoption of our software and analytics offerings . we believe that increased recurring revenue from these solutions will provide us with enhanced business visibility over time . professional services constitute an additional growth channel that helps our customers integrate and optimize the use of our offerings in their environment . geographic expansion with localization strategy - we view international expansion as an important element of our strategy and we continue to position ourselves in geographic markets that will serve as important sources of future growth . we currently have a physical presence in over 40 countries and distribution channels in over 100 countries . in 2017 , over 50 % of our sales were to customers located in countries outside of the u.s. optimized go to market strategies to best access our markets - we utilize vertically focused go-to-market strategies that leverage domain expertise to best serve the needs of individual markets domestically and abroad . these go to market capabilities include independent dealers , joint ventures , original equipment manufacturers ( `` oem '' ) sales , and distribution alliances with key partners , such as cnh global , caterpillar , and nikon , as well as direct sales to end-users , that provide us with broad market reach and localization capabilities to effectively serve our markets . strategic acquisitions - organic growth continues to be our primary focus , while acquisitions serve to enhance our market position . we acquire businesses that bring domain expertise , technology , products , or distribution capabilities that augment our portfolio and allow us to penetrate existing markets more effectively , or to establish a market beachhead . our success in targeting and effectively integrating acquisitions is an important aspect of our growth strategy . 30 trimble 's focus on these growth drivers has led over time to growth in revenue and profitability as well as an increasingly diversified business model . story_separator_special_tag in evaluating the revenue recognition for our hardware or subscription agreements which contain multiple deliverables , we determined that in certain instances we were not able to establish vsoe for some or all deliverables in an arrangement as we infrequently sold each element on a standalone basis , did not price products within a narrow range , or had a limited sales history . when vsoe can not be established , we attempt to establish the selling price of each element based on relevant third-party evidence ( `` tpe '' ) . tpe is determined based on competitor prices for similar deliverables when sold separately . our offerings may contain a significant level of proprietary technology , customization or differentiation such that the comparable pricing of products with similar functionality can not be obtained . furthermore , we are unable to reliably determine what similar competitor products ' selling prices are on a stand-alone basis . therefore , we typically are not able to establish the selling price of an element based on tpe . when we are unable to establish selling price using vsoe or tpe , we use our best estimate of selling price ( `` besp '' ) in our allocation of arrangement consideration . the objective of besp is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis . besp is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings . we determine besp for a product or service by considering multiple factors including , but not limited to , pricing practices , market conditions , competitive landscape , internal costs , geographies and gross margin . the determination of besp is made through consultation with and formal approval by our management , taking into consideration our go-to-market strategy . income taxes we are a united states-based multinational company operating in multiple u.s. and foreign jurisdictions . significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes . we consider many factors when evaluating and estimating our tax positions and tax benefits , which may require periodic adjustments and may not accurately forecast actual tax audit outcomes . determining whether an uncertain tax position is effectively settled requires judgment . changes in recognition or measurement of our uncertain tax positions would result in the recognition of a tax benefit or an additional charge to the tax provision . income taxes are accounted for under the liability method whereby deferred tax assets or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income . a valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if we believe it is more likely than not such assets will not be realized . we are subject to the periodic examination of our domestic and foreign tax returns by the irs , state , local and foreign tax authorities who may challenge our tax positions . we regularly assess the likelihood of adverse outcomes from these examinations in determining the adequacy of our provision for income taxes . on december 22 , 2017 , the 2017 tax cuts and jobs act ( the `` tax act '' ) was enacted into law , which significantly changes u.s income tax law and includes several key provisions that affect our business , including a federal corporate income tax rate reduction from 35 % to 21 % effective in 2018 , among others . we are required to recognize the effect of the tax law changes in the period of enactment , such as determining the transition tax , re-measuring our u.s. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities . in addition , the sec staff issued staff accounting bulletin no . 118 , income tax accounting implications of the tax act ( “ sab 118 ” ) , which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date . since the tax act was passed late in the fourth quarter of 2017 , and ongoing guidance and accounting interpretation are expected over the next year , we consider the accounting of the transition tax , deferred tax re-measurements , indefinite reinvestment assertion , and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and our tax positions . in addition , we have not yet determined our policy election as to whether we will recognize deferred taxes for basis differences expected to reverse as global intangible low taxed income ( “ gilti ” ) or whether we will account for gilti as a period cost , if and when incurred . we expect to complete our analysis within the measurement period in accordance with sab 118 . 32 business combinations and valuation of goodwill and purchased intangible assets we allocate the fair value of purchase consideration to the assets acquired , liabilities assumed , and non-controlling interests in the acquiree based on their fair values as of the acquisition date . the excess of the fair value of purchase consideration over the fair value of these assets acquired , liabilities assumed and non-controlling interests in the acquiree is recorded as goodwill . when determining the fair values of assets acquired , liabilities assumed , and non-controlling interests in the acquiree , management makes significant estimates and assumptions , especially with respect to intangible assets . critical estimates in valuing intangible assets include , but are not limited to , expected future cash flows , which includes consideration of future growth rates and margins , customer attrition rates , future changes in technology and brand awareness , loyalty and position , and discount rates .
| results of operations overview the following table is a summary of revenue , gross margin and operating income for the periods indicated and should be read in conjunction with the narrative descriptions below . replace_table_token_4_th basis of presentation we have a 52-53 week fiscal year , ending on the friday nearest to december 31 , which for fiscal 2017 was december 29 , 2017 . fiscal 2017 , 2016 and 2015 were all 52-week years . revenue in fiscal 2017 , total revenue increased by $ 292.0 million , or 12 % , to $ 2.65 billion from $ 2.36 billion in fiscal 2016 . overall revenue increased primarily due to organic growth across all segments and major regions . to a lesser extent , acquisitions contributed to growth , particularly in product and service revenue . we consider organic growth to include all revenue except for revenue associated with acquisitions made within the last four quarters . on a segment basis , the increase in fiscal 2017 was primarily due to transportation , buildings and infrastructure , resources and utilities , and to a lesser extent , geospatial . transportation increased $ 92.9 million , or 16 % , buildings and infrastructure revenue increased $ 91.4 million , or 12 % , resources and utilities revenue increased $ 81.2 million , or 21 % , and geospatial revenue increased $ 26.5 million , or 4 % , as compared to fiscal 2016 . transportation revenue increased due to continued organic growth in the transportation and logistics business . buildings and infrastructure revenue increased primarily due to strong organic growth in civil engineering and construction and building construction . resources and utilities revenue increased primarily due to acquisitions , in particular the impact of the müller-elektronik ( `` müller '' ) acquisition , and continued organic growth in agriculture , correction services , and forestry . geospatial revenue increased mainly due to strong geospatial and surveying organic growth . by revenue category , overall product revenue increased $ 201.8
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ernst & young llp baltimore , maryland march 3 , 2014 story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the company 's selected financial data and the company 's financial statements and the accompanying notes included herein . the following discussion may contain `` forward-looking statements '' within the meaning of the securities act and the exchange act . when used in this form 10-k , the words `` estimate , '' `` anticipate , '' `` expect , '' `` believe , '' `` should '' and similar expressions are intended to be forward-looking statements . although the company believes that its plans , intentions and expectations reflected in such forward-looking statements are reasonable , it can give no assurance that such plans , intentions or expectations will be achieved . prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties , and that actual results may differ materially from those contemplated by such forward-looking statements . important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements are set forth under the heading `` risk factors '' in item 1a and elsewhere in this form 10-k. capitalized or defined terms included in this item 7 have the meanings set forth in item 1 of this form 10-k. business overview magellan health services , inc. ( `` magellan '' ) was incorporated in 1969 under the laws of the state of delaware . magellan 's executive offices are located at 55 nod road , avon , connecticut 06001 , and its telephone number at that location is ( 860 ) 507-1900. references in this report to the `` company '' include the accounts of magellan and its majority owned subsidiaries . business overview the company is engaged in the healthcare management business , and is focused on meeting needs in areas of healthcare that are fast growing , highly complex and high cost , with an emphasis on special population management . the company provides services to health plans , mcos , insurance companies , employers , labor unions , various military and governmental agencies , third party administrators , and brokers . the company 's business is divided into the following five segments , based on the services it provides and or the customers that it serves , as described below . managed healthcare two of the company 's segments are in the managed healthcare business . this line of business reflects the company 's : ( i ) management of behavioral healthcare services , and ( ii ) the integrated management of physical and behavioral healthcare for special populations , delivered through mcc . the company 's coordination and management of behavioral healthcare includes services provided through its comprehensive network of behavioral health professionals , clinics , hospitals and ancillary service providers . this network of credentialed and privileged providers is integrated with clinical and quality improvement programs to enhance the healthcare experience for individuals in need of care , while at the same time managing the cost of these services for our customers . the treatment services provided through the company 's provider network include outpatient programs ( such as counseling or therapy ) , intermediate care programs ( such as intensive outpatient programs and partial hospitalization services ) , inpatient treatment and crisis intervention services . the company generally does not directly provide or own any provider of treatment services , although it does employ licensed behavioral health counselors to deliver non-medical counseling under certain government contracts . the company 's integrated management of physical and behavioral healthcare includes its full service health plans which provide for the holistic management of special populations . the special populations include individuals with serious mental illness , dual eligibles , those eligible for long term care , intellectually and developmentally disabled individuals , and other populations with unique and often complex healthcare needs . 41 the company provides its management services primarily through : ( i ) risk-based products , where the company assumes all or a substantial portion of the responsibility for the cost of providing treatment services in exchange for a fixed per member per month fee , ( ii ) aso products , where the company provides services such as utilization review , claims administration and or provider network management , but does not assume responsibility for the cost of the treatment services , and ( iii ) eaps where the company provides short-term outpatient behavioral counseling services . the managed healthcare business is managed based on the services provided and or the customers served , through the following two segments : commercial . commercial generally reflects managed behavioral healthcare services and eap services provided under contracts with health plans , insurance companies and mcos for some or all of their commercial , medicaid and medicare members , as well as with employers , including corporations , governmental agencies , and labor unions . commercial 's contracts encompass risk-based , aso and eap arrangements . as of december 31 , 2013 , commercial 's covered lives were 4.0 million , 13.5 million and 13.0 million for risk-based , aso and eap products , respectively . for the year ended december 31 , 2013 , commercial 's revenue was $ 501.1 million , $ 116.9 million and $ 148.8 million for risk-based , aso and eap products , respectively . public sector . public sector generally reflects : ( i ) the management of behavioral health services provided to recipients under medicaid and other state sponsored programs under contracts with state and local governmental agencies , and ( ii ) the integrated management of physical , behavioral and pharmaceutical care for special populations covered under medicaid and other government sponsored programs . public sector contracts encompass either risk-based or aso arrangements . as of december 31 , 2013 , public sector 's covered lives were 2.1 million and 1.7 million for risk-based and aso products , respectively . story_separator_special_tag the shares received by such principal owners of partners rx are subject to vesting over three years with 50 % vesting on the second anniversary of the acquisition and 50 % vesting on the third anniversary of the acquisition , conditioned on continued employment with the company on the applicable vesting dates . the company reports the results of operations of partners rx within its pharmacy management segment . 43 acquisition of alphacare holdings , inc. pursuant to the august 13 , 2013 stock purchase agreement ( the `` stock purchase agreement '' ) , on december 31 , 2013 the company acquired a 65 % equity interest in alphacare holdings , inc. ( `` alphacare holdings '' ) , the holding company for alphacare new york , inc. ( `` alphacare '' ) , a health maintenance organization ( `` hmo '' ) in new york that operates a new york managed long-term care plan `` ( mltcp '' ) in bronx , new york , queens , kings and westchester counties , and medicare plans in bronx , new york , queens and kings counties . the company previously held a 7 % equity interest in alphacare through a previous equity investment of $ 2.0 million in preferred membership units of alphacare 's previous holding company , alphacare holdings , llc on may 17 , 2013. the company also previously loaned $ 5.9 million to alphacare holdings , llc . as part of the stock purchase agreement , alphacare holdings , llc was reorganized into a delaware corporation , the preferred membership units and the loan were converted into series a participating preferred stock ( `` series a preferred '' ) of alphacare holdings and the company purchased an additional $ 17.4 million of series a preferred . the company holds a 65 % voting interest and the remaining shareholders hold a 35 % voting interest in alphacare holdings . based on the company 's 65 % equity and voting interest in alphacare holdings , the company has included the results of operations in its consolidated financial statements . the company reports the results of operations of alphacare holdings within the public sector segment . managed care and other revenue managed care revenue . managed care revenue , inclusive of revenue from the company 's risk , eap and aso contracts , is recognized over the applicable coverage period on a per member basis for covered members . the company is paid a per member fee for all enrolled members , and this fee is recorded as revenue in the month in which members are entitled to service . the company adjusts its revenue for retroactive membership terminations , additions and other changes , when such adjustments are identified , with the exception of retroactivity that can be reasonably estimated . the impact of a retroactive rate amendment is generally recorded in the accounting period that terms to the amendment are finalized , and that the amendment is executed . any fees paid prior to the month of service are recorded as deferred revenue . managed care revenues approximated $ 2.2 billion , $ 2.5 billion and $ 2.7 billion for the years ended december 31 , 2011 , 2012 and 2013 , respectively . fee-for-service and cost-plus contracts . the company has certain fee-for-service contracts , including cost-plus contracts , with customers under which the company recognizes revenue as services are performed and as costs are incurred . revenues from these contracts approximated $ 174.5 million , $ 151.4 million and $ 215.1 million for the years ended december 31 , 2011 , 2012 and 2013 , respectively . block grant revenues . public sector has a contract that is partially funded by federal , state and county block grant money , which represents annual appropriations . the company recognizes revenue from block grant activity ratably over the period to which the block grant funding applies . block grant revenues were approximately $ 114.4 million , $ 124.8 million and $ 131.5 million for the years ended december 31 , 2011 , 2012 and 2013 , respectively . performance-based revenue . the company has the ability to earn performance-based revenue under certain risk and non-risk contracts . performance-based revenue generally is based on either the ability of the company to manage care for its clients below specified targets , or on other operating metrics . for each such contract , the company estimates and records performance-based revenue after considering the relevant contractual terms and the data available for the performance-based revenue calculation . pro-rata performance-based revenue may be recognized on an interim basis pursuant to the rights and obligations of each party upon termination of the contracts . performance-based revenues were $ 26.5 million , $ 25.4 million and $ 14.0 million for the years ended december 31 , 2011 , 2012 and 2013 , respectively . 44 rebate revenue . the company administers a rebate program for certain clients through which the company coordinates the achievement , calculation and collection of rebates and administrative fees from pharmaceutical manufacturers on behalf of clients . each period , the company estimates the total rebates earned based on actual volumes of pharmaceutical purchases by the company 's clients , as well as historical and or anticipated sharing percentages . the company earns fees based upon the volume of rebates generated for its clients . the company does not record as rebate revenue any rebates that are passed through to its clients . total rebate revenues for the years ended december 31 , 2011 , 2012 and 2013 were $ 32.8 million , $ 40.2 million and $ 34.8 million , respectively . in relation to the company 's pbm business , the company administers rebate programs through which it receives rebates from pharmaceutical manufacturers that are shared with its customers . the company recognizes rebates when the company is entitled to them and when the amounts of the rebates are determinable . the amount recorded for rebates earned by the company from the pharmaceutical manufacturers are recorded as a reduction of cost of goods sold .
| results of operations the accounting policies of the company 's segments are the same as those described in note 1 '' general . '' the company evaluates performance of its segments based on profit or loss from operations before stock compensation expense , depreciation and amortization , interest expense , interest and other income , gain on sale of assets , special charges or benefits , and income taxes ( `` segment profit '' ) . management uses segment profit information for internal reporting and control purposes and considers it important in making decisions regarding the allocation of capital and other resources , risk assessment and employee compensation , among other matters . public sector subcontracts with pharmacy management to provide pharmacy benefits management services for certain of public 51 sector 's customers . as such , revenue and cost of care related to this intersegment arrangement are eliminated . the company 's segments are defined above . the following tables summarize , for the periods indicated , operating results by business segment ( in thousands ) : replace_table_token_10_th replace_table_token_11_th replace_table_token_12_th ( 1 ) stock compensation expense is included in direct service costs and other operating expenses , however this amount is excluded from the computation of segment profit since it is managed on a consolidated basis .
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item 14. principal accounting fees and services during the years ended december 31 , 2015 and 2014 , the company incurred auditing expenses of approximately $ 8,100 and $ 4,320 , respectively , which includes audit and review engagement services . there were not other audit related services or tax fees incurred . there were no other audit related services or tax fees incurred . 18 part iv item 15. exhibits , financial statement schedules the company 's financial statements filed as part of this annual report are listed in the and provided in response to item 8. exhibits required by item 601 of regulation s-k : replace_table_token_8_th * filed previously * * filed herewith 19 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . vet online supply , inc. date : april 14 , 2016 by : edward aruda edward aruda chief executive officer pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . edward aruda chief executive officer and director april 14 , 2016 edward aruda edward aruda chief financial officer april 14 , 2016 edward aruda 20 story_separator_special_tag the following discussion should be read in conjunction with our financial statements and the notes thereto included in this report beginning on page f-1 . the results shown herein are not necessarily indicative of the results to be expected in any future periods . this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . significant accounting policies our discussion and analysis of our results of operations and liquidity and capital resources are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , valuation of intangible assets and investments , share-based payments , income taxes and litigation . we base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances , including assumptions as to future events . these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . by their nature , estimates are subject to an inherent degree of uncertainty . actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position . we believe that the following significant accounting policies and assumptions may involve a higher degree of judgment and complexity than others . emerging growth company we qualify as an “ emerging growth company ” under the jobs act . as a result , we are permitted to , and intend to , rely on exemptions from certain disclosure requirements . for so long as we are an emerging growth company , we will not be required to : · have an auditor report on our internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act ; · comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( i.e. , an auditor discussion and analysis ) ; · submit certain executive compensation matters to shareholder advisory votes , such as “ say-on-pay ” and “ say-on-frequency ; ” and · disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the ceo 's compensation to median employee compensation . in addition , section 107 of the jobs act also provides that an emerging growth company can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to take advantage of the benefits of this extended transition period . our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards . we will remain an “ emerging growth company ” for up to five years , or until the earliest of ( i ) the last day of the first fiscal year in which our total annual gross revenues exceed $ 1 billion , ( ii ) the date that we become a “ large accelerated filer ” as defined in rule 12b-2 under the securities exchange act of 1934 , which would occur if the market value of our ordinary shares that is story_separator_special_tag item 14. principal accounting fees and services during the years ended december 31 , 2015 and 2014 , the company incurred auditing expenses of approximately $ 8,100 and $ 4,320 , respectively , which includes audit and review engagement services . there were not other audit related services or tax fees incurred . there were no other audit related services or tax fees incurred . 18 part iv item 15. exhibits , financial statement schedules the company 's financial statements filed as part of this annual report are listed in the and provided in response to item 8. exhibits required by item 601 of regulation s-k : replace_table_token_8_th * filed previously * * filed herewith 19 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . vet online supply , inc. date : april 14 , 2016 by : edward aruda edward aruda chief executive officer pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . edward aruda chief executive officer and director april 14 , 2016 edward aruda edward aruda chief financial officer april 14 , 2016 edward aruda 20 story_separator_special_tag the following discussion should be read in conjunction with our financial statements and the notes thereto included in this report beginning on page f-1 . the results shown herein are not necessarily indicative of the results to be expected in any future periods . this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . significant accounting policies our discussion and analysis of our results of operations and liquidity and capital resources are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , valuation of intangible assets and investments , share-based payments , income taxes and litigation . we base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances , including assumptions as to future events . these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . by their nature , estimates are subject to an inherent degree of uncertainty . actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position . we believe that the following significant accounting policies and assumptions may involve a higher degree of judgment and complexity than others . emerging growth company we qualify as an “ emerging growth company ” under the jobs act . as a result , we are permitted to , and intend to , rely on exemptions from certain disclosure requirements . for so long as we are an emerging growth company , we will not be required to : · have an auditor report on our internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act ; · comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( i.e. , an auditor discussion and analysis ) ; · submit certain executive compensation matters to shareholder advisory votes , such as “ say-on-pay ” and “ say-on-frequency ; ” and · disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the ceo 's compensation to median employee compensation . in addition , section 107 of the jobs act also provides that an emerging growth company can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to take advantage of the benefits of this extended transition period . our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards . we will remain an “ emerging growth company ” for up to five years , or until the earliest of ( i ) the last day of the first fiscal year in which our total annual gross revenues exceed $ 1 billion , ( ii ) the date that we become a “ large accelerated filer ” as defined in rule 12b-2 under the securities exchange act of 1934 , which would occur if the market value of our ordinary shares that is
| results of operations our results of operations are presented below : results of operations for the twelve months ended december 31 , 2015 compared to the twelve months ended december 31 , 2014. during the twelve months ended december 31 , 2015 we incurred a net loss of $ 90,883 , compared to a net loss of $ 72,097 during the same period in fiscal december 31 , 2014. the increase in our net loss during the year ended december 31 , 2015 was primarily due to increased operating expense , including general and administrative and selling expenses . during fiscal 2015 we recorded a gain of $ 19,480 in respect to the cancelation of a convertible note with no similar transaction in fiscal 2014. in fiscal 2014 we incurred a one-time participation fee of $ 50,000 with respect to our entry into the veterinary supply business , with no recurring expense in fiscal 2015. liquidity and capital resources as of december 31 , 2015 we had $ 1,870 in cash and $ 14,547 in total assets , and $ 88,377 in total liabilities as compared to $ 364 in cash and total assets , and $ 57,311 in total liabilities as of december 31 , 2014. the company is looking to raise up to $ 600,000 to fundits proposed operations for the next twelve months .
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amounts borrowed under the loan agreement were subject to automatic conversion upon a subsequent qualified financing by the company of $ 5,000,000 ( excluding any converted debt amount ) story_separator_special_tag the following information should be read in conjunction with the financial statements , including the notes thereto , included elsewhere in this form 10-k. this discussion contains certain forward-looking statements that involve risks and uncertainties . our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors , including , but not limited to , those set forth herein and elsewhere in this form 10-k. overview we are a healthcare company focused primarily on developing novel antibiotics and oral health products . within oral health we are marketing our oral health probiotics blend , probiora3 to consumers and to dental professionals . we also maintain a suite of other patented technologies stemming from several years of our research efforts in the oral health space . our antibiotics members of our scientific team discovered that a certain bacterial strain produces mu1140 , a molecule belonging to the novel class of antibiotics known as lantibiotics . lantibiotics , such as mu1140 , are highly modified peptide antibiotics made by a small group of gram positive bacterial species . approximately 60 lantibiotics have been discovered since 1927 when the first lantibiotic , nisin , was discovered . lantibiotics are generally recognized to be potent antibiotic agents . we have performed preclinical testing on mu1140 , which has demonstrated the molecule 's novel mechanism of action . mu1140 has proven active preclinically against all gram positive bacteria against which it has been tested , including those responsible for a number of healthcare associated infections or hais . the most common hais are caused by drug-resistant bacteria , including methicillin-resistant staphylococcus aureus , or mrsa , vancomycin-resistant enterococcus faecalis , or vre ; and clostridium difficile , or c. diff . we believe the need for novel antibiotics is increasing as a result of the growing resistance of target pathogens to existing fda approved antibiotics on the market . the challenge presented by lantibiotics is that they have been difficult to investigate for their clinical usefulness as a therapeutic agent in the treatment of infectious diseases due to a general inability to produce or synthesize sufficient quantities of pure amounts of any of these molecules . standard fermentation methods are used to make a variety of currently marketed antibiotics . when such fermentation methods are used to make lantibiotics the result is the production of only minute amounts of the lantibiotic . in order to meet the challenge associated with producing sufficient quantities of mu1140 for our clinical trials and ultimately our commercialization efforts , we are currently pursuing the following paths : in june 2012 , we entered into a worldwide exclusive collaboration agreement ( ecc ) with intrexon corporation ( intrexon ) for the development and commercialization of the native strain of mu1140 using intrexon 's advanced transgene and cell engineering platforms . we expect to pursue our research and development efforts with intrexon in accordance with the terms of the ecc on the development of the mu1140 molecule and potential derivatives of the molecule . we also produced a synthetic version of mu1140 known as mu1140-s. we created mu1140-s using our patented , novel organic chemistry synthesis platform known as dpolt ( differentially protected orthogonal lanthionine technology ) . we engaged bachem americas , inc. ( bachem ) , a peptide synthesis manufacturing company to assist us with research on producing greater amounts of mu1140-s. while the work performed by bachem generated improvements in the yield of components necessary to synthesize mu1140-s , further research was determined to be needed , which was beyond the scope of our initial agreement with bachem . we continue to pursue this research internally through the use of existing grant funds . 46 we have previously performed preclinical testing on native mu1140 and such testing has demonstrated the molecule 's novel mechanism of action . we expect to begin preclinical activities on either native mu1140 , or an analog developed under the ecc with intrexon , in the second half of 2013. these preclinical activities are expected to include toxicity results , pharmacokinetic studies , and efficacy studies in animals . this work will be done solely by us through the use of outside contractors . pursuit of clinical trials toward the goal of ultimately obtaining regulatory approval will depend upon further successful advancements in our research collaboration efforts with intrexon and our efforts to have additional product manufactured . developments from these efforts will dictate our regulatory path . if our preclinical work is successful , we would expect to file an investigational new drug application with the fda by the first quarter of 2015. through our work with intrexon , we have been able to produce an exponential increase in the fermentation titer of the target compound mu1140 and the discovery of a new purification process for mu1140 . we believe these developments represent progress toward our goal of commercial production of sufficient quantities of mu1140 and delivers a step in validating the lantibiotics platform targeting infectious diseases . previously , the ability to manufacture mu1140 by fermentation was originally thought not to be commercially feasible due to low titers and difficulties in purification . in addition to the optimization of fermentation and purification strategies , we are working to leverage intrexon 's genetic and cell engineering expertise to produce analogs of mu1140 toward the goal of establishing a pipeline of new lantibiotics . manufacturing requirements and methods for producing mu1140 , or an analog , will primarily be dependent upon the end results of our efforts under the ecc with intrexon . we are actively seeking a third party manufacturer to produce additional quantities of mu1140 , or a designated analog , based upon the developments achieved from our work with intrexon . story_separator_special_tag prior to 2008 our revenues were derived solely from research grants . since 2008 , our revenues have also included sales of our probiora3 products , which we initiated in late 2008. for the years ended december 31 , 2012 and 2011 , our net revenues were $ 1,331,764 and $ 1,444,447 , respectively . as of december 31 , 2012 , we had an accumulated deficit of $ 54,086,362 and we have yet to achieve profitability . we incurred net losses of $ 13,090,446 and $ 7,678,868 for the years ended december 31 , 2012 and 2011 , respectively . we expect to incur significant and increasing operating losses for the foreseeable future as we seek to advance our product candidates through preclinical testing and clinical trials to ultimately obtain regulatory approval and eventual commercialization . we are continuing our efforts to raise additional capital . adequate additional funding may not be available to us on acceptable terms , or at all . we expect that research and development expenses will increase along with general and administrative costs , as we grow and operate our business . there can be no assurance that additional capital will be available to us on acceptable terms , if at all . 48 financial overview net revenues our revenues prior to 2008 consisted exclusively of grant funding from government agencies under the national science foundation 's , or nsf , and national institutes of health 's , or nih , small business innovation research , or sbir , grants . since the initial launch of our probiora3 products in late 2008 , our net revenues for the year ended december 31 , 2008 and thereafter , also included sales of our probiora3 products . sales of our probiora3 products were $ 1,194,878 and $ 1,229,510 for the years ended december 31 , 2012 and 2011 , respectively . because of our efforts to increase the distribution of our probiora3 products , we expect net revenues to increase in the future . however , our success will depend on a number of factors , including our ability to successfully engage in marketing efforts related to our probiora3 products . we expect that our revenues will fluctuate from quarter to quarter as a result of the volume of sales of our products and the amount of license fees , research and development reimbursements , milestone and other payments from any license or strategic partnerships we may enter into in the future . cost of goods sold our cost of goods sold includes the production and manufacture of our probiora3 products , as well as shipping and processing expenses and scrap expense . scrap expense represents product rework charges , inventory adjustments , inventory replacement reserves , and damaged inventory . because our probiora3 products contain live organisms they have a limited shelf life . as such , we attempt to manage the amount of production we request of our manufacturers and the amount of inventory we maintain . we expect our costs of goods sold to increase as we are able to expand our distribution and sales efforts for our probiora3 products . research and development expenses research and development consists of expenses incurred in connection with the discovery and development of our product candidates . these expenses consist primarily of employee-related expenses , which include salaries and benefits and attending science conferences ; expenses incurred under agreements with contract research organizations , investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical studies ; the cost of acquiring and manufacturing clinical trial materials ; facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities and equipment , and depreciation of fixed assets ; license fees for and milestone payments related to in-licensed products and technology ; stock-based compensation expense ; and costs associated with non-clinical activities and regulatory approvals . we expense research and development costs as incurred . our research and development expenses can be divided into ( i ) clinical research , and ( ii ) preclinical research and development activities . clinical research costs consist of clinical trials , manufacturing services , regulatory activities and related personnel costs , and other costs such as rent , utilities , depreciation and stock-based compensation . preclinical research and development costs consist of our research activities , preclinical studies , related personnel costs and laboratory supplies , and other costs such as rent , utilities , depreciation and stock-based compensation and research expenses we incur associated with our ecc agreement with intrexon . while we are currently focused on advancing our product development programs , our future research and development expenses will depend on the clinical success of our product candidate , as well as ongoing assessments of each product candidate 's commercial potential . in addition , we can not forecast with any degree of certainty which product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans , research expenses and capital requirements . our research and development expenses were $ 7,860,987 and $ 2,449,178 for the years ended december 31 , 2012 and 2011 , respectively . included in research and development expense for 2012 is the non-cash expense of $ 5,798,001 associated with an up-front issuance of 4,392,425 shares of our common stock to intrexon in connection with the establishment of the ecc with intrexon . 49 our current strategy is to increase our research and development expenses in the future as we continue the advancement of our clinical trials and preclinical product development programs for our mu1140 product candidate and with respect to our probiotic projects . the lengthy process of completing clinical trials ; seeking regulatory approval for our product candidates ; and expanding the claims we are able to make , requires expenditure of substantial resources .
| results of operations : replace_table_token_4_th for the three months ended december 31 , 2012 and 2011 net revenues . we generated net revenues of $ 430,582 for the three months ended december 31 , 2012 compared to $ 396,590 in the same period in 2011 ; an increase of $ 33,992. the increase was primarily attributable to an increase in probiora3 product sales relating to a new international distributor that was partially offset by a decline in grant revenues . cost of goods sold . cost of goods sold was $ 403,935 for the three months ended december 31 , 2012 compared to 155,422 in the same period in 2011 ; an increase of $ 248,513. the increase was attributable to an increase of approximately $ 189,000 in the scrap expenses related to inventory reserves in 2012. cost of goods sold in 2012 includes the production and manufacturing costs of our probiora3 products sold of $ 181,334 , shipping and processing expenses of $ 20,553 , and scrap expense of $ 202,048. cost of goods sold in 2011 includes the production and manufacturing costs of our probiora3 products sold of $ 100,420 , shipping and processing expenses of $ 42,330 , and scrap expense of $ 12,672. scrap expenses represent product rework charges , inventory adjustments , inventory reserves of $ 202,048 and $ 12,672 during 2012 and 2011 , respectively , associated with expected inventory replacement costs , and damaged inventory . research and development . research and development expenses were $ 730,207 for the three months ended december 31 , 2012 compared to $ 842,191 in the same period in 2011 ; a decrease of $ 111,984 , or 13.3 % .
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cfr increased $ 94,487,000 , or 22.6 % , to $ 512,085,000 in 2013. cfr for the project management segment increased $ 80,370,000 principally due to increased work in the middle east , primarily oman , qatar and saudi arabia . cfr for the construction claims segment increased by $ 14,117,000 due primarily to increased work in the middle east and asia/pacific . cost of services increased $ 56,483,000 , or 23.6 % , to $ 296,055,000 in 2013 as a result of an increase in employees and other direct expenses related to the additional work in the middle east . gross profit increased $ 38,004,000 , or 21.3 % , to $ 216,030,000 in 2013 due to the increases in cfr . gross profit as a percent of cfr remained relatively constant at 42.2 % in 2013. selling , general and administrative expenses increased $ 10,793,000 , or 6.2 % , principally due to the unapplied portion of new staff required for the increase in cfr . as a percentage of cfr , selling , general and administrative expenses decreased to 35.8 % in 2013 compared to 41.4 % in 2012. operating profit was $ 32,458,000 in 2013 compared to $ 5,247,000 in 2012. the increase in operating profit was primarily due to a combination of increased cfr , lower selling , general and administrative expenses as a percentage of cfr resulting from ongoing cost-cutting initiatives and higher utilization rates for professional staff . income tax expense was $ 6,043,000 for 2013 compared to $ 13,442,000 for 2012. the change is primarily the result of an increase of $ 17,707,000 in the valuation allowance against the company 's u.s. deferred tax asset in 2012. net income attributable to hill was $ 1,629,000 in 2013 compared to a net loss of ( $ 28,217,000 ) in 2012. diluted income per common share was $ 0.04 in 2013 based upon 39,322,000 diluted common shares outstanding compared to a net loss per diluted common share of ( $ 0.73 ) in 2012 based upon 38,500,000 diluted common shares outstanding . we have open but inactive contracts in libya . during 2013 and early 2014 , we received payments of approximately $ 9,200,000 from our client , the libyan organization for the development of administrative centres ( `` odac '' ) , for work performed prior to march 2011. the remaining accounts receivable balance with odac is now $ 50,800,000. since the end of the libyan civil unrest in october 2011 , the company has sought to recover its receivable from odac through ongoing negotiations rather than pursue its legal rights for payment under the contracts . the company believes that this course of action provides the best likelihood for recovery as it could result in completion of and payment on the existing contracts as well as the potential for the award of new contracts . there is at present no agreement , understanding or timetable for further payments of hill 's accounts receivable from odac or a return to work on hill 's existing contracts . however , management believes that these payments , along with letters of credit of approximately $ 14,000,000 posted in our favor by odac , were made in good faith and are a positive indication that odac intends to satisfy its obligations to hill . however , the company can not predict with certainty when , or if , the remaining accounts receivable will be paid by the libyan authorities or when work will resume there . despite continuing global economic uncertainty and current limits to financial credit , we remain optimistic about maintaining our current growth strategy to pursue new business development 29 opportunities , continue to take advantage of organic growth opportunities , continue to pursue acquisitions and strengthen our professional resources . among other things , our optimism stems from the growth of our backlog at december 31 , 2013. our total backlog is a record $ 1,027,000,000 , an increase of $ 76,000,000 from september 30 , 2013 and $ 104,000,000 from december 31 , 2012. our 12-month backlog is also a record $ 394,000,000 , an increase of $ 12,000,000 from september 30 , 2013 and $ 12,000,000 from december 31 , 2012. these increases are primarily related to significant new work in iraq and saudi arabia . non-gaap financial measures regulation g , conditions for use of non-generally accepted accounting principles ( `` non-gaap '' ) financial measures , and other sec regulations define and prescribe the conditions for use of certain non-gaap financial information . generally , a non-gaap financial measure is a numerical measure of a company 's performance , financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with gaap . we believe earnings before interest , taxes , depreciation and amortization ( `` ebitda '' ) , in addition to operating profit , net earnings and other gaap measures , is a useful indicator of our financial and operating performance and our ability to generate cash flows from operations that are available for taxes and capital expenditures . this measure , however , should be considered in addition to , and not as a substitute or superior to , operating profit , cash flows , or other measures of financial performance prepared in accordance with gaap . the following table is a reconciliation of ebitda to the most directly comparable gaap measure in accordance with sec regulation s-k for the years ended december 31 , 2013 , 2012 and 2011 ( in thousands ) : replace_table_token_10_th critical accounting policies and estimates our consolidated financial statements were prepared in accordance with u.s. generally accepted accounting principles , which require us to make subjective decisions , assessments and estimates about the effect of matters that are inherently uncertain . as the number of variables and assumptions affecting the judgment increases , such judgments become even more subjective . story_separator_special_tag the projections are developed by us and are based upon cash flows that maximize reporting unit value by taking into account improvements that controlling-interest holders can make , but minority interest holders can not make . these improvements include : increasing revenues , reducing operating costs , or reducing non-operating costs such as taxes . the owners of the enterprise may also increase enterprise value by reducing risk ; for example , by diversifying the business , improving access to capital , increasing the certainty of cash flows , or optimizing the capital structure . we considered the factors listed above when developing the cash flows to support the income approach . recognizing that due to elements of control incorporated into our reporting units ' forecasts , we applied no control premium to our conclusion of value indicated by the discounted cash flows . in determining fair value , we applied a weighting of 30 % to the preliminary fair value determined using the income approach . with regard to weighting the conclusions rendered by the approaches utilized , we believe that the quoted price method provides the most reliable indication of value ( that is , a level 1 input ) ; therefore , we placed the greatest emphasis upon this method assigning a 50 % weighting . we also determined that the value using the discounted cash flow method ( to which we assigned a 30 % weighting ) provided a more reliable indication of value than the public company method ( to which we assigned a 20 % weighting ) with the relative levels of reliability contributing to the weighting accorded to each approach . application of the goodwill impairment test requires significant judgments including estimation of future cash flows , which is dependent on internal forecasts , estimation of the long-term rate of growth for each reporting unit , the period over which cash flows will occur , and determination of the weighted average cost of capital , among other things . based on the valuation as of july 1 , 2013 , the fair values of the project management unit and the construction claims unit substantially exceeded their carrying values . changes in these estimates and assumptions could materially affect our determination of fair value and or goodwill impairment for each reporting unit . changes in future market conditions , our business strategy , or other factors could impact upon the future values of hill 's reporting units , which could result in future impairment charges . we amortize other intangible assets over their estimated useful lives and review the long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable . determining whether impairment has occurred typically requires various estimates and assumptions , including determining which cash flows are directly related to the potentially impaired asset , the useful life over which cash flows will occur , their amount and the asset 's residual value , if any . in turn , measurement of an impairment loss requires a determination of fair value , which is based on the best information available . we use internal discounted cash flow estimates , quoted market prices when available and independent appraisals , as appropriate , to determine fair value . we derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate . 32 income taxes we make judgments and interpretations based on enacted tax laws , published tax guidance , as well as estimates of future earnings . these judgments and interpretations affect the provision for income taxes , deferred tax assets and liabilities and the valuation allowance . we evaluate the deferred tax assets to determine on the basis of objective factors whether the net assets will be realized through future years ' taxable income . in the event that actual results differ from these estimates and assessments , additional valuation allowances may be required . we will recognize a tax benefit in the financial statements for an uncertain tax position only if management 's assessment is that the position is `` more likely than not '' ( i.e. , a likelihood greater than 50 percent ) to be allowed by the tax jurisdiction based solely on the technical merits of the position . the term `` tax position '' refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods . stock options we recognize compensation expense for all stock-based awards . these awards have included stock options and restricted stock grants . while fair value may be readily determinable for awards of stock , market quotes are not available for long-term , nontransferable stock options because these instruments are not traded . we currently use the black-scholes option pricing model to estimate the fair value of options . option valuation models require the input of highly subjective assumptions , including but not limited to stock price volatility , expected life and stock option exercise behavior . contingencies estimates are inherent in the assessment of our exposure to insurance claims that fall below policy deductibles and to litigation and other legal claims and contingencies , as well as in determining our liabilities for incurred but not reported insurance claims . significant judgments by us and reliance on third-party experts are utilized in determining probable and or reasonably estimable amounts to be recorded or disclosed in our financial statements . the results of any changes in accounting estimates are reflected in the financial statements of the period in which the changes are determined . we do not believe that material changes to these estimates are reasonably likely to occur .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 consulting fee revenue ( `` cfr '' ) replace_table_token_11_th the increase in cfr for 2013 over 2012 was substantially all organic and was primarily due to increased work in the middle east . during 2013 , project management cfr consisted of a $ 76,032,000 increase in foreign projects and an increase of $ 4,338,000 in domestic projects . the increase in foreign project management cfr included an increase of $ 47,826,000 in oman , $ 12,321,000 in qatar , $ 7,634,000 in saudi arabia , $ 5,478,000 in iraq and $ 5,194,000 in afghanistan . these increases were partially offset by a decrease of $ 8,930,000 in spain . the increase in domestic project management cfr was due primarily to increases in our northeast and mid-atlantic regions . 33 the increase in construction claims cfr was comprised of an organic increase of 11.0 % and a 2.4 % increase from the acquisition of binnington copeland & associates ( `` bca '' ) in may 2013. the organic increase was primarily due to increases in middle east and asia/pacific , partially offset by a decrease in the united kingdom . reimbursable expenses replace_table_token_12_th reimbursable expenses consist of amounts paid to subcontractors and other third parties , and travel and other job-related expenses that are contractually reimbursable from clients . these items are reflected as separate line items in both our revenue and cost of services captions in our consolidated statements of operations . the increase in construction claims reimbursable expenses was due primarily to increases in the middle east and asia/pacific due to subcontractors and other reimbursable expenses associated with the increased work volume . cost of services replace_table_token_13_th cost of services consists of labor expenses for time charged directly to contracts and non-reimbursable job-related travel and out-of-pocket expenses .
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in determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity , we consider factors such as ownership interest , board representation , management representation , authority to make decisions , and contractual and substantive participating rights of the partners/members as well story_separator_special_tag forward-looking statements this annual report on form 10-k contains forward-looking statements within the meaning of section 27a of the securities act , and section 21e of the exchange act . for these statements , we claim the protections of the safe harbor for forward-looking statements contained in such section . forward-looking statements are subject to substantial risks and uncertainties , many of which are difficult to predict and are generally beyond our control . in particular , statements pertaining to our capital resources , portfolio performance , dividend policy and results of operations contain forward-looking statements . likewise , all of our statements regarding anticipated growth in our portfolio from operations , acquisitions and anticipated market conditions , demographics and results of operations are forward-looking statements . forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events . you can identify forward-looking statements by the use of forward-looking terminology such as “ believes , ” “ expects , ” “ may , ” “ will , ” “ should , ” “ seeks , ” “ approximately , ” “ intends , ” “ plans , ” “ estimates , ” “ contemplates , ” “ aims , ” “ continues , ” “ would ” or “ anticipates ” or the negative of these words and phrases or similar words or phrases . forward-looking statements depend on assumptions , data or methods which may be incorrect or imprecise and we may not be able to realize them . we do not guarantee that the transactions and events described will happen as described ( or that they will happen at all ) . the following factors , among others , could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements : the factors included in this annual report on form 10-k , including those set forth under the heading `` business , '' risk factors , '' and `` management 's discussion and analysis of financial condition and results of operations '' ; changes in our industry , the real estate markets , either nationally or in manhattan or the greater new york metropolitan area ; resolution of legal proceedings involving the company ; reduced demand for office or retail space ; a consumer shift to online shopping , which reduces demand for rental space ; fluctuations in attendance at the observatory and adverse weather ; new office or observatory development in our market ; general volatility of the capital and credit markets and the market price of our class a common stock and our publicly-traded op units ; changes in our business strategy ; changes in technology and market competition , which affect utilization of our broadcast or other facilities ; changes in domestic or international tourism , including geopolitical and currency exchange rates events ; defaults on , early terminations of , or non-renewal of leases by , tenants ; insolvency of a major tenant or a significant number of smaller tenants ; fluctuations in interest rates ; increased operating costs ; declining real estate valuations and impairment charges ; termination or expiration of our ground leases ; availability , terms and deployment of capital ; inability to continue to raise additional debt or equity financing on attractive terms , or at all ; our leverage ; decreased rental rates or increased vacancy rates ; our failure to generate sufficient cash flows to service our outstanding indebtedness ; our failure to redevelop and reposition properties , or to execute any newly planned capital project , successfully or on the anticipated timeline or at the anticipated costs ; difficulties in identifying properties to acquire and completing acquisitions ; risks of real estate development and capital projects , including construction delays and cost overruns ; inability to manage our properties and our growth effectively ; inability to make distributions to our securityholders in the future ; impact of changes in governmental regulations , tax law and rates and similar matters ; failure to continue to qualify as a real estate investment trust , or reit ; a future terrorist event in the u.s. ; environmental uncertainties and risks related to adverse weather conditions , rising sea levels , and natural disasters ; lack or insufficient amounts of insurance ; misunderstanding of our competition ; changes in real estate and zoning laws and increases in real property tax rates ; 50 inability to comply with the laws , rules and regulations applicable to similar companies ; and damages resulting from security breaches through cyberattacks , cyber intrusions or otherwise , as well as other significant disruptions of our technology ( it ) networks related systems . while forward-looking statements reflect our good faith beliefs , they are not guarantees of future performance . actual results may differ materially from our current projection . we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors , of new information , data or methods , future events or other changes after the date of this annual report on form 10-k , except as required by applicable law . for a further discussion of these and other factors that could impact our future results , performance or transactions , see the section entitled “ risk factors '' of this annual report on form 10-k. you should not place undue reliance on any forward-looking statements , which are based only on information currently available to us . overview unless the context otherwise requires or indicates , references in this section to `` we , '' `` our '' and `` us '' refer to ( i ) our company and its consolidated subsidiaries . story_separator_special_tag observatory revenue observatory revenues were higher primarily due to an improvement in our ticket mix and higher per person average ticket price , partially offset by the scheduled closure of the 102nd floor observation deck in the first quarter 2018 for replacement of original elevator machinery . lease termination fees the year ended december 31 , 2018 included significantly higher lease termination fees , from a combination of broadcast and office tenants , compared to the year ended december 31 , 2017 . 57 third-party management and other fees third-party management and other fees were consistent with 2017. other revenues and fees the increase in other revenues and fees for the year ended december 31 , 2018 was primarily due to a $ 2.8 million settlement with a former broadcast tenant . property operating expenses the increase in property operating expenses was primarily due to higher repairs and maintenance costs and higher labor costs . ground rent expenses the ground rent expense was consistent with 2017. general and administrative expenses the increase in general and administrative expenses was primarily due to increased equity compensation expense . observatory expenses the increase in observatory expenses was primarily due to higher payroll costs of $ 0.8 million , higher technology costs of $ 0.7 million and higher marketing costs of $ 0.6 million . real estate taxes the increase in real estate taxes was primarily attributable to higher assessed values for multiple properties . depreciation and amortization the increase in depreciation and amortization was primarily due to depreciation of assets newly placed in service together with the accelerated depreciation of retired assets , partially offset by lower amortization of purchase accounting deferred leasing costs associated with 2013 and 2014 acquisitions as these costs become fully amortized . interest income interest income increased primarily due to higher interest rates on cash balances and short-term investments . interest expense interest expense increased due to higher outstanding principal balances . loss on early extinguishment of debt there was no loss on early extinguishment of debt for the year ended december 31 , 2018. loss from derivative financial instruments there was no loss from derivative financial instruments for the year ended december 31 , 2018. income taxes the decrease in income tax expense was primarily attributable to a reduction in the federal corporate tax rate . private perpetual preferred unit distributions the private perpetual preferred unit distributions were consistent with 2017 . 58 net income attributable to non-controlling interests the decrease represents lower non-controlling ownership percentage due to the redemption of operating partnership units into class a common shares . liquidity and capital resources liquidity is a measure of our ability to meet potential cash requirements , including ongoing commitments to repay borrowings , fund and maintain our assets and operations , including lease-up costs , fund our redevelopment and repositioning programs , acquire properties , make distributions to our securityholders and other general business needs . based on the historical experience of our management and our business strategy , in the foreseeable future we anticipate we will generate positive cash flows from operations . in order to qualify as a reit , we are required under the code to distribute to our securityholders , on an annual basis , at least 90 % of our reit taxable income , determined without regard to the deduction for dividends paid and excluding net capital gains . we expect to make quarterly distributions to our securityholders . while we may be able to anticipate and plan for certain liquidity needs , there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations . for example , we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties , thereby increasing our liquidity needs . even if there are no material changes to our anticipated liquidity requirements , our sources of liquidity may be fewer than , and the funds available from such sources may be less than , anticipated or needed . our primary sources of liquidity will generally consist of cash on hand , short term investments , cash generated from our operating activities , debt issuances and unused borrowing capacity under our unsecured revolving credit and term loan facility . we expect to meet our short-term liquidity requirements , including distributions , operating expenses , working capital , debt service , and capital expenditures from cash flows from operations , cash and short-term investments , debt issuances , and available borrowing capacity under our unsecured revolving credit and term loan facility . the availability of these borrowings is subject to the conditions set forth in the applicable loan agreements . we expect to meet our long-term capital requirements , including acquisitions , redevelopments and capital expenditures through our cash flows from operations , cash on hand , short term investments , our unsecured revolving credit and term loan facility , mortgage financings , debt issuances , common and or preferred equity issuances and asset sales . our properties require periodic investments of capital for individual lease related tenant improvements allowances , general capital improvements and costs associated with capital expenditures . our overall leverage will depend on our mix of investments and the cost of leverage . our charter does not restrict the amount of leverage that we may use . at december 31 , 2019 , we had approximately $ 233.9 million available in cash and cash equivalents and there was $ 1.1 billion available under our unsecured revolving credit facility . through august 2021 , qia will have a right of first offer to co-invest with us as a joint venture partner in real estate investment opportunities initiated by us where we have elected , at our discretion , to seek out a joint venture partner in real estate investment opportunities .
| 2019 highlights achieved net income attributable to the company of $ 49.4 million . core ffo was $ 267.9 million . occupancy and leased percentages at december 31 , 2019 : total portfolio was 88.6 % occupied ; including signed leases not commenced ( “ slnc ” ) , total portfolio was 91.2 % leased . manhattan office portfolio ( excluding the retail component of these properties ) was 89.8 % occupied ; including slnc , the manhattan office portfolio was 92.7 % leased . retail portfolio was 90.3 % occupied ; including slnc , the retail portfolio was 93.1 % leased . empire state building was 94.1 % occupied ; including slnc , the empire state building was 95.2 % leased . signed 161 leases , representing 1,303,395 rentable square feet across the total portfolio , achieving a 18.1 % increase in mark-to-market cash rent over previous fully escalated cash rents on new , renewal , and expansion leases . signed 76 new leases representing 709,757 rentable square feet in 2019 for the manhattan office portfolio ( excluding the retail component of these properties ) , achieving an increase of 26.4 % in mark-to-market cash rent over expired previous fully escalated cash rents . empire state building observatory revenue for the year ended december 31 , 2019 decreased by 1.9 % to $ 128.8 million from $ 131.2 million for the year ended december 31 , 2018. net operating income for the year ended december 31 , 2019 , decreased by 3.5 % to $ 95.0 million from $ 98.5 million for the year ended december 31 , 2018. as a reminder , the 102nd floor observation deck was closed for approximately nine months in 2019 and reopened on october 12 , 2019. declared and paid aggregate dividends of $ 0.42 per share during 2019. as of december 31 , 2019 , our total portfolio contained 10.1 million rentable square feet of office and retail space .
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the company follows asc 740-10 which provides guidance for tax positions related to the recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our consolidated financial statements the impact of a tax position , if that position is more likely than not to be sustained upon an examination , based on the technical merits of the position . interest and penalties , if any , related to income tax matters are recorded as income tax expenses . revenue recognition : we recognize sales upon shipment of products net of applicable provisions for any discounts or allowances . the shipping date from our warehouse is the appropriate point of revenue recognition since upon shipment we have substantially completed our obligations which entitle us to receive the benefits represented by the revenues , and the shipping date provides a consistent point within our control to measure revenue . customers may not return , exchange or refuse acceptance of goods without our approval . however , the company has entered into an agreement with a customer to grant pre-approved rights of return of up to twenty-five percent of products sold on certain invoices to provide for and gain acceptance within certain markets . when a pre-approved right of return is granted , revenue recognition is deferred until the right of return expires . we have established allowances to cover anticipated doubtful accounts based upon historical experience . the company reflects the factored accounts receivable as amount due from factor with the corresponding advance from the factor reflected separately as line of credit – factor . the company assigns trade receivables on a pre-approved non-recourse basis to the factor under the factoring agreement on an ongoing basis . inventories : inventories are valued at the lower of cost or net realizable value . cost is determined on the first in/first out method . we evaluate inventories on a quarterly basis and write down inventory that is deemed obsolete or unmarketable in an amount equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions . off-balance sheet arrangements . we have not created , and are not party to , any special-purpose or off balance sheet entities for the purpose of raising capital , incurring debt or operating parts of our business that are not consolidated into our financial statements and do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources . recently issued accounting pronouncements changes to accounting principles generally accepted in the united states of america ( u.s. gaap ) are established by the financial accounting standards board ( fasb ) in the form of accounting standards updates ( asu 's ) to the fasb 's accounting standards codification . the company considers the applicability and impact of all asu 's . in june 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers : topic 606. asu 2014-09 affects any entity using u.s. gaap that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards ( e.g. , insurance contracts or lease contracts ) . this asu supersedes the revenue recognition requirements in topic 605 , revenue recognition , and most industry-specific guidance . this asu also supersedes some cost guidance included in subtopic 605-35 , revenue recognition—construction-type and production-type contracts . in addition , the requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer ( e.g. , assets within the scope of topic 360 , property , plant , and equipment , and intangible assets within the scope of topic 350 , intangibles—goodwill and other ) are amended to be consistent with the guidance on recognition and measurement ( including the constraint on revenue ) in this asu . - 11 - the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . to achieve that core principle , an entity should apply the following steps : step 1 : identify the contract ( s ) with a customer . step 2 : identify the performance obligations in the contract . step 3 : determine the transaction price . step 4 : allocate the transaction price to the performance obligations in the contract . step 5 : recognize revenue when ( or as ) the entity satisfies a performance obligation . this guidance is effective for annual periods beginning on or after december 15 , 2017 , including interim reporting periods within that reporting period and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the asu recognized at the date of initial application . the adoption of this new accounting standard is not expected to have a material impact on the consolidated financial statements and footnote disclosures . in december 2016 the fasb issued accounting standards update no . 2016-20 , technical corrections and improvements to topic 606 , revenue from contracts with customers , or asu 2016-20. the amendments in asu 2016-20 update and affect narrow aspects of the guidance issued in asu 2014-09. in may 2016 , the fasb issued asu 2016-12 , narrow scope improvements and practical expedients , which provided revised guidance on certain issues relating to revenue from contracts with customers , including clarification of the objective of the collectability criterion . in march 2016 , the story_separator_special_tag the company follows asc 740-10 which provides guidance for tax positions related to the recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our consolidated financial statements the impact of a tax position , if that position is more likely than not to be sustained upon an examination , based on the technical merits of the position . interest and penalties , if any , related to income tax matters are recorded as income tax expenses . revenue recognition : we recognize sales upon shipment of products net of applicable provisions for any discounts or allowances . the shipping date from our warehouse is the appropriate point of revenue recognition since upon shipment we have substantially completed our obligations which entitle us to receive the benefits represented by the revenues , and the shipping date provides a consistent point within our control to measure revenue . customers may not return , exchange or refuse acceptance of goods without our approval . however , the company has entered into an agreement with a customer to grant pre-approved rights of return of up to twenty-five percent of products sold on certain invoices to provide for and gain acceptance within certain markets . when a pre-approved right of return is granted , revenue recognition is deferred until the right of return expires . we have established allowances to cover anticipated doubtful accounts based upon historical experience . the company reflects the factored accounts receivable as amount due from factor with the corresponding advance from the factor reflected separately as line of credit – factor . the company assigns trade receivables on a pre-approved non-recourse basis to the factor under the factoring agreement on an ongoing basis . inventories : inventories are valued at the lower of cost or net realizable value . cost is determined on the first in/first out method . we evaluate inventories on a quarterly basis and write down inventory that is deemed obsolete or unmarketable in an amount equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions . off-balance sheet arrangements . we have not created , and are not party to , any special-purpose or off balance sheet entities for the purpose of raising capital , incurring debt or operating parts of our business that are not consolidated into our financial statements and do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources . recently issued accounting pronouncements changes to accounting principles generally accepted in the united states of america ( u.s. gaap ) are established by the financial accounting standards board ( fasb ) in the form of accounting standards updates ( asu 's ) to the fasb 's accounting standards codification . the company considers the applicability and impact of all asu 's . in june 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers : topic 606. asu 2014-09 affects any entity using u.s. gaap that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards ( e.g. , insurance contracts or lease contracts ) . this asu supersedes the revenue recognition requirements in topic 605 , revenue recognition , and most industry-specific guidance . this asu also supersedes some cost guidance included in subtopic 605-35 , revenue recognition—construction-type and production-type contracts . in addition , the requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer ( e.g. , assets within the scope of topic 360 , property , plant , and equipment , and intangible assets within the scope of topic 350 , intangibles—goodwill and other ) are amended to be consistent with the guidance on recognition and measurement ( including the constraint on revenue ) in this asu . - 11 - the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . to achieve that core principle , an entity should apply the following steps : step 1 : identify the contract ( s ) with a customer . step 2 : identify the performance obligations in the contract . step 3 : determine the transaction price . step 4 : allocate the transaction price to the performance obligations in the contract . step 5 : recognize revenue when ( or as ) the entity satisfies a performance obligation . this guidance is effective for annual periods beginning on or after december 15 , 2017 , including interim reporting periods within that reporting period and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the asu recognized at the date of initial application . the adoption of this new accounting standard is not expected to have a material impact on the consolidated financial statements and footnote disclosures . in december 2016 the fasb issued accounting standards update no . 2016-20 , technical corrections and improvements to topic 606 , revenue from contracts with customers , or asu 2016-20. the amendments in asu 2016-20 update and affect narrow aspects of the guidance issued in asu 2014-09. in may 2016 , the fasb issued asu 2016-12 , narrow scope improvements and practical expedients , which provided revised guidance on certain issues relating to revenue from contracts with customers , including clarification of the objective of the collectability criterion . in march 2016 , the
| general we are in the business of marketing and distributing safety and security products which are primarily manufactured through our 50 % owned hong kong joint venture . our consolidated financial statements detail our sales and other operational results , and report the financial results of the hong kong joint venture that is accounted for using the equity method of accounting . accordingly , the following discussion and analysis of the fiscal years ended march 31 , 2018 and 2017 relate to the operational results of the company and its consolidated subsidiary only and includes the company 's equity share of earnings in the hong kong joint venture . a discussion and analysis of the hong kong joint venture 's operational results for these periods is presented below under the heading “ hong kong joint venture. ” we believe that our overall sales are likely affected by the severe downturn in the u.s. housing market that occurred in 2008. although there has since been improvement in the industry , it has not returned to pre-2008 performance . as stated elsewhere in this report , our usi electric subsidiary markets our products to the electrical distribution trade ( primarily electrical and lighting distributors and manufactured housing companies ) ; every downturn in new home construction and new home sales negatively impacts sales by our usi electric subsidiary . our operating results for the current fiscal years ended march 31 , 2018 and 2017 continue to be significantly impacted by the economic conditions of the u.s. housing market . we further believe that our fiscal 2018 and 2017 retail sales were impacted by the movement of the smoke and carbon monoxide alarm retail markets toward ten-year sealed alarms to comply with new laws passed in several states , including california and new york . as the company continues to market its new line of sealed battery units , the company expects an improvement in sales and higher gross profit margins .
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all forward-looking statements concerning economic conditions , growth rates , income , expenses , or other values which are included in this document are based on information available to the company on the date noted , and the company assumes no obligation to update any such forward-looking statements . it is important to note that the company 's actual results could materially differ from those in such forward-looking statements . risk factors that could cause actual results to differ materially from those in forward-looking statements include but are not limited to those outlined previously in item 1a . critical accounting policies the company 's financial statements are prepared in accordance with accounting principles generally accepted in the united states . the financial information and disclosures contained within those statements are significantly impacted by management 's estimates and judgments , which are based on historical experience and incorporate various assumptions that are believed to be reasonable under current circumstances . actual results may differ from those estimates under divergent conditions . critical accounting policies are those that involve the most complex and subjective decisions and assessments , and have the greatest potential impact on the company 's stated results of operations . in management 's opinion , the company 's critical accounting policies deal with the following areas : the establishment of the allowance for loan and lease losses , as explained in detail in note 2 to the consolidated financial statements and in the “ provision for loan losses ” and “ allowance for loan and lease losses ” sections of this discussion and analysis ; the valuation of impaired loans and foreclosed assets , as discussed in note 2 to the consolidated financial statements ; income taxes and deferred tax assets and liabilities , especially with regard to the ability of the company to recover deferred tax assets as discussed in the “ provision for income taxes ” and “ other assets ” sections of this discussion and analysis ; and goodwill and other intangible assets , which are evaluated annually for impairment and for which we have determined that no impairment exists , as discussed in note 2 to the consolidated financial statements and in the “ other assets ” section of this discussion and analysis . critical accounting areas are evaluated on an ongoing basis to ensure that the company 's financial statements incorporate the most recent expectations with regard to those areas . story_separator_special_tag times , serif ; margin : 0pt 0 0pt 0.25in ; text-align : justify ; text-indent : -0.25in '' > · gross loans and leases were up $ 167 million , or 21 % , for the year in 2014. loan growth was favorably impacted by the purchase of $ 33 million in residential mortgage loans , strong organic growth in agricultural real estate loans , mortgage warehouse loans , commercial real estate loans , and commercial loans , and $ 62 million in loans from our acquisition of scvb . growth in performing loan balances in 2014 was partially offset by a $ 17 million reduction in nonperforming loans . in 2013 , loan volume was negatively impacted by a $ 97 million decline in mortgage warehouse loans resulting from lower credit line utilization , and a $ 16 million reduction in nonperforming loans . 27 · nonperforming assets ended 2014 at $ 25 million , representing a reduction of $ 21 million , or 46 % , for the year . the net decline during 2014 is comprised of a $ 17 million reduction in loans on non-accrual status and a $ 4 million reduction in foreclosed assets . the company 's ratio of nonperforming assets to loans plus foreclosed assets fell to 2.53 % at december 31 , 2014 , from 5.62 % at december 31 , 2013 . · our allowance for loan and lease losses totaled $ 11.2 million as of december 31 , 2014 , a decline of $ 429,000 , or 4 % , relative to year-end 2013. the drop during 2014 was due to lower general reserves on performing loans , consistent with improvement in asset quality . the allowance fell to 1.16 % of total loans at december 31 , 2014 from 1.45 % of total loans at december 31 , 2013 due to credit quality improvement in the existing portfolio , rigorous underwriting standards for newly-originated loans , and the fact that scvb loans were recorded on our books at their fair values . · deposits reflect an increase of $ 193 million , or 16 % , during 2014 , but experienced no net growth in 2013. for 2014 , the increase includes $ 108 million in deposits from the acquisition of scvb and strong organic growth in core non-maturity deposits . in 2013 , growth in non-maturity deposits was offset by the maturity of a brokered time deposit and the runoff of other time deposits managed by our treasury department . · total capital increased by $ 5 million , or 3 % , to $ 187 million at december 31 , 2014. despite the higher level of capital , risk-based capital ratios declined as capital was leveraged during the year to acquire scvb and grow risk-adjusted assets . at december 31 , 2014 , the consolidated company 's total risk-based capital ratio was 18.44 % , its tier one risk-based capital ratio was 17.39 % , and its tier one leverage ratio was 12.99 % . results of operations net income was $ 15.240 million in 2014 , an increase of $ 1.871 million , or 14 % , relative to 2013. the company earns income from two primary sources . the first is net interest income , which is interest income generated by earning assets less interest expense on deposits and other borrowed money . the second is non-interest income , which primarily consists of customer service charges and fees but also comes from non-customer sources such as bank-owned life insurance . story_separator_special_tag the principle negative factors impacting our net interest margin in 2013 were competitive pressures on loan yields and an increase in low-yielding average balances at the frb . partially offsetting the negative developments were a shift in average balances from non-deposit borrowings and higher-cost time deposits into lower-cost non-maturity deposits , an increase in the average balance of non-interest bearing demand deposits , and net interest recoveries in 2013 relative to net interest reversals in 2012. provision for loan and lease losses credit risk is inherent in the business of making loans . the company sets aside an allowance for loan and lease losses , a contra-asset account , through periodic charges to earnings that are reflected in the income statement as the provision for loan and lease losses . the company 's loan loss provision has been sufficient to maintain the allowance for loan and lease losses at a level that , in management 's judgment , is adequate to absorb probable loan losses related to specifically-identified impaired loans as well as probable incurred losses in the remaining loan portfolio . specifically identifiable and quantifiable loan losses are immediately charged off against the allowance , while principal recoveries on previously charged-off balances are credited back to the allowance . our loan loss provision was $ 350,000 for 2014 , representing a reduction of $ 4.000 million , or 92 % , relative to 2013. the provision was lower in 2014 due in part to a lower level of net charge-offs . our net charge-offs were $ 779,000 in 2014 relative to $ 6.546 million in 2013 , for a reduction of $ 5.767 million , or 88 % . over $ 3 million in principal recoveries on previously charged-off balances contributed to the drop in net charge-offs in 2014. additional factors which helped reduce our need for building reserves via the loan loss provision in 2014 include the fact that the credit quality of our performing loan portfolio continues to improve , as newer loans have been underwritten utilizing more stringent criteria than older vintage loans . 31 the company 's policies for monitoring the adequacy of the allowance and determining loan amounts that should be charged off , and other detailed information with regard to changes in the allowance , are discussed below under “ allowance for loan and lease losses. ” the process utilized to establish an appropriate allowance for loan and lease losses can result in a high degree of variability in the company 's loan loss provision , and consequently in our net earnings . non-interest revenue and operating expense the table below sets forth the major components of the company 's non-interest revenue and operating expense , along with relevant ratios , for the years indicated : non-interest income/expense ( dollars in thousands ) replace_table_token_7_th ( 1 ) tax equivalent 32 the company 's results reflect reductions in total non-interest income of $ 1.232 million , or 7 % , in 2014 relative to 2013 , and $ 1.063 million , or 6 % , for 2013 over 2012. while the primary reasons for declining non-interest income are discussed in greater detail below , several items of a non-recurring nature have had a significant impact over the past few years . in 2014 , non-recurring income was comprised primarily of $ 667,000 in gains on the sale of investments . for 2013 , non-recurring income items include $ 397,000 in life insurance proceeds and a $ 100,000 non-recurring signing incentive received in conjunction with our merchant processing vendor conversion . in 2012 , we realized $ 1.762 million in gains on the sale of investments , had non-recurring accrual adjustments to costs associated with tax credit investments and other limited partnership investments , and received life insurance proceeds totaling $ 87,000. variability in income on boli associated with deferred compensation plans also contributed to the year-to-year changes in total non-interest income . the principal component of the company 's non-interest revenue , namely service charges on deposit accounts , fell by $ 747,000 , or 8 % , in 2014 relative to 2013. the primary reason for the drop was lower fees received from customer overdrafts and returned items , but certain other service charges were also down due in part to fees waived in the course of our core system conversion in the first quarter of 2014. deposit service charges also declined by $ 654,000 , or 7 % , in 2013 relative to 2012 , mainly as the result of certain debit card interchange fees that were included with service charges on deposits in 2012 but which were reclassified to other service charges in 2013. the company 's ratio of service charge income to average transaction account balances was 1.2 % in 2014 , down from 1.4 % in 2013 and 1.7 % in 2012. the next line item under other operating income is credit card fees , which consist primarily of credit card interchange fees . despite the sale of all credit card balances in 2007 , we still receive a portion of the interchange and interest income from credit cards issued in our name . credit card fees did not change materially in 2014 over 2013 , but increased by $ 72,000 , or 18 % , in 2013 relative to 2012. checkcard fees , which represent interchange fees from electronic funds transactions ( “ efts ” ) , increased by $ 159,000 , or 4 % , in 2014 over 2013 , and by $ 962,000 , or 35 % , in 2013 over 2012. the increase in 2014 can be explained by growth in our deposit account base , while the increase in 2013 includes the impact of the aforementioned reclassification of debit card interchange fees .
| summary of performance the company recognized net income of $ 15.240 million in 2014 , relative to $ 13.369 million in 2013 and $ 8.185 million in 2012. net income per diluted share was $ 1.08 in 2014 , as compared to $ 0.94 in 2013 and $ 0.58 for 2012. the company 's return on average assets and return on average equity were 1.03 % and 8.18 % , respectively , in 2014 , as compared to 0.96 % and 7.56 % , respectively , in 2013 , and 0.59 % and 4.74 % , respectively , for 2012. the company 's financial performance improved in 2014 relative to recent years , due in part to better economic conditions that contributed to reductions in nonperforming assets , lower credit costs , increased lending activity , and strong core deposit growth . those trends were evident to a lesser extent in 2013 , but for several years prior to that our financial performance was materially impacted by adverse economic conditions . certain regions of california , including kern county , have shown strong economic improvement over the past couple of years , although the recovery has been slower to take hold in many of our other markets . despite the improvement in 2014 , net income remains well below levels achieved in pre-recession years as competitive pressures continue to take their toll on loan rates and net interest income , and certain elements of non-interest income are also lower in response to industry-wide regulatory pressures . 26 the following are some of the major factors impacting the company 's results of operations for the years presented in the consolidated financial statements .
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although approximately 77 % of revenues were generated in north america in 2019 , we have a global presence by serving customers in europe , asia , south america and africa . we serve customers through an independent network of approximately 1,500 independent distributor and dealer locations worldwide . trends impacting our business our net sales are driven by commercial vehicle production , which tends to be highly correlated to macroeconomic conditions . during 2020 , we expect lower demand in the global on-highway and global off-highway end markets partially offset by increased demand in the service parts , support equipment & other and defense end markets and price increases on certain products . full year 2019 and 2018 net sales by end market ( in millions ) replace_table_token_7_th north america on-highway end market net sales were up 12 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , principally driven by higher demand for rugged duty series and highway series models , led by the continued execution of our growth initiatives and market share gains in class 4/5 truck . north america off-highway end market net sales were down $ 63 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , principally driven by lower demand from hydraulic fracturing applications . defense end market net sales were down 4 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , principally driven by lower tracked and wheeled vehicle demand . 34 outside north america on-highway end market net sales were up 2 % for the year ended december 31 , 201 9 compared to the year ended december 31 , 201 8 , principally driven by higher demand in south america and europe , partially offset by lower demand in asia . outside north america off-highway end market net sales were down 16 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , principally driven by lower demand in the mining and construction sectors , partially offset by higher demand in the energy sector . service parts , support equipment and other end market net sales were down 14 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , principally driven by lower demand for north america parts . key components of our results of operations net sales we generate our net sales primarily from the sale of vehicle propulsion solutions , service and component parts , support equipment , defense kits , engineering services , royalties and extended transmission coverage to a wide array of oems , distributors and the u.s. government . sales are recorded net of provisions for customer allowances and other rebates . engineering services are recorded as net sales in accordance with the terms of the contract . the associated costs are recorded in cost of sales . we also have royalty agreements with third parties that provide net sales as a result of joint efforts in developing marketable products . cost of sales our primary components of cost of sales are purchased parts , the overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of vehicle propulsion solutions and parts . for the year ended december 31 , 2019 , direct material costs were approximately 69 % , overhead costs were approximately 24 % and direct labor costs were approximately 7 % of total cost of sales . we are subject to changes in our cost of sales caused by movements in underlying commodity prices . we seek to hedge against this risk by using long-term agreements ( `` ltas '' ) . see part ii , item 7a , “ quantitative and qualitative disclosures about market risk—commodity price risk ” included in this annual report on form 10-k. selling , general and administrative the principal components of our selling , general and administrative expenses are salaries and benefits for our office personnel , advertising and promotional expenses , product warranty expense , expenses relating to certain information technology systems and amortization of our intangibles . engineering — research and development we incur costs in connection with research and development programs that are expected to contribute to future earnings . such costs are expensed as incurred . non-gaap financial measures we use adjusted earnings before interest , taxes , depreciation , and amortization ( “ ebitda ” ) and adjusted ebitda as a percent of net sales to measure our operating profitability . we believe that adjusted ebitda and adjusted ebitda as a percent of net sales provide management , investors and creditors with useful measures of the operational results of our business and increase the period-to-period comparability of our operating profitability and comparability with other companies . adjusted ebitda as a percent of net sales is also used in the calculation of management 's incentive compensation program . the most directly comparable u.s. generally accepted accounting principles ( “ gaap ” ) measure to adjusted ebitda and adjusted ebitda as a percent of net sales is net income and net income as a percent of net sales , respectively . adjusted ebitda is calculated as earnings before interest expense , income tax expense , amortization of intangible assets , depreciation of property , plant and equipment and other adjustments as defined by the second amended and restated credit agreement dated as of march 29 , 2019 ( the “ credit agreement ” ) governing allison transmission , inc. 's ( “ ati ” ) , our wholly-owned 35 subsidiary , new term l oan facility in the amount of $ 644 million due march 2026 ( “ new term loan ” ) . adjusted ebitda as a percent of net sales is calculated as adjusted ebitda divided by net sales . story_separator_special_tag cost of sales cost of sales for the year ended december 31 , 2018 was $ 1,291 million compared to $ 1,131 million for the year ended december 31 , 2017 , an increase of 14 % . the increase was principally driven by increased direct material and manufacturing expenses commensurate with increased net sales , $ 15 million of expenses related to a retirement incentive program for certain uaw local 933 employees and unfavorable material costs , partially offset by expenses of $ 9 million associated with the ratification of a new collective bargaining agreement with uaw local 933 in 2017 that did not recur in 2018 . 40 gross profit gross profit for the year ended december 31 , 2018 was $ 1,422 million compared to $ 1,131 million for the year ended december 31 , 2017 , an increase of 26 % . the increase was principally driven by $ 282 million related to increased net sales , $ 32 million of price increases on certain products and expenses of $ 9 million associated with the ratification of a new collective bargaining agreement with uaw local 933 in 2017 that did not recur in 2018 , partially offset by $ 16 million of higher manufacturing expenses commensurate with increased net sales , $ 15 million of expenses related to a retirement incentive program for certain uaw local 933 employees and $ 2 million of unfavorable material costs . gross profit as a percent of net sales for the year ended december 31 , 2018 increased 240 basis points compared to the same period in 2017 principally driven by increased net sales , price increases on certain products and expenses associated with the ratification of the new collective bargaining agreement in 2017 that did not recur in 2018 , partially offset by expenses related to the retirement incentive program and unfavorable material costs . selling , general and administrative selling , general and administrative expenses for the year ended december 31 , 2018 were $ 364 million compared to $ 342 million for the year ended december 31 , 2017 , an increase of 6 % . the increase was principally driven by $ 20 million of higher product warranty expense commensurate with increased net sales and increased commercial activities spending . engineering — research and development engineering expenses for the year ended december 31 , 2018 were $ 131 million compared to $ 105 million for the year ended december 31 , 2017 , an increase of 25 % . the increase was principally driven by increased product initiatives spending . loss associated with impairment of long-lived assets during the fourth quarter of 2018 and 2017 , we recorded approximately $ 4 million and $ 32 million , respectively , of losses associated with the impairment of certain of our long-lived assets related to the production of the tc10 transmission . see note 2 “ summary of significant accounting policies ” of notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for additional details . interest expense , net interest expense , net for the year ended december 31 , 2018 was $ 121 million compared to $ 103 million for the year ended december 31 , 2017 , an increase of 17 % . the increase was principally driven by $ 14 million of higher interest expense for ati 's 4.75 % senior notes issued in september 2017 ( “ 4.75 % senior notes ” ) and $ 6 million of higher interest expense on ati 's prior term loan principally driven by higher interest rates , partially offset by interest expense on revolving loan balances in 2017 that did not recur in 2018. other income ( expense ) , net other income ( expense ) , net for the year ended december 31 , 2018 was $ 3 million compared to $ ( 22 ) million for the year ended december 31 , 2017. the change was principally driven by $ 13 million of lower technology-related investments expense for investments in co-development agreements to expand our position in transmission technologies , $ 12 million of credits related to post-retirement benefit plan amendments and $ 4 million of favorable foreign exchange , partially offset by a $ 3 million decrease in foreign exchange losses on intercompany financing . 41 income tax expense income tax expense for the year ended december 31 , 2018 was $ 166 million resulting in an effective tax rate of 21 % , compared to $ 23 million of income tax expense and an effective tax rate of 4 % for the year ended december 31 , 2017. the change in the effective tax rate was a result of the u.s. tax cuts and jobs act enacted into law in 2017 and was principally driven by a one time $ 157 million tax benefit resulting from a decrease in deferred tax liabilities in 2017 , partially offset by $ 5 million of tax expense related to the deemed repatriation of accumulated foreign earnings and profits in 2017 as a result of the u.s. tax cuts and jobs act . liquidity and capital resources we generate cash primarily from operations to fund our operating , investing and financing activities . our principal uses of cash are operating expenses , working capital needs , strategic growth initiatives , including acquisitions , capital expenditures , stock repurchases , debt service and dividends on common stock . we had total available cash and cash equivalents of $ 192 million and $ 231 million as of december 31 , 2019 and 2018 , respectively . of the available cash and cash equivalents , approximately $ 122 million and $ 120 million were deposited in operating accounts while approximately $ 70 million and $ 111 million were invested in u.s. government backed securities as of december 31 , 2019 and 2018 , respectively .
| results of operations the following tables set forth certain financial information for the years ended december 31 , 2019 and 2018 and for the years ended december 31 , 2018 and 2017. the following tables and discussion should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto included in part ii , item 8 of this annual report on form 10-k. comparison of years ended december 31 , 2019 and 2018 replace_table_token_9_th net sales net sales for the year ended december 31 , 2019 were $ 2,698 million compared to $ 2,713 million for the year ended december 31 , 2018 , a decrease of 1 % . the decrease was principally driven by an $ 89 million , or 14 % , decrease in net sales in the service parts , support equipment and other end market principally driven by lower demand for north america parts , a $ 63 million , or 68 % , decrease in net sales in the north america off-highway end market principally driven by lower demand from hydraulic fracturing applications , a $ 20 million , or 16 % , decrease in net sales in the outside north america off-highway end market principally driven by lower demand in the mining and construction sectors , partially offset by higher demand in the energy sector , and a $ 7 million , or 4 % , decrease in net sales in the defense end market principally driven by lower tracked and wheeled vehicle demand ; partially offset by a $ 157 million , or 12 % , increase in net sales in the north america on-highway end market principally driven by higher demand for rugged duty series and highway series models , led by the continued execution of our growth initiatives and market share gains in class 4/5 truck , and a $ 7 million , or 2 % , increase in net sales in the outside north america on-highway
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this enables us to efficiently service residences , businesses , restaurant chains , hotels and motels , small and large retailers , and healthcare facilities . the beverage market is subject to some seasonal variations . our purchases of raw materials and related accounts payable fluctuate based upon the demand for our products as well as the timing of the fruit growing seasons . the seasonality of our sales volume combined with the seasonal nature of fruit growing causes our working capital needs to fluctuate throughout the year , with inventory levels increasing in the first half of the year in order to meet high summer demand . in addition , our accounts receivable balances decline in the fall as customers pay their higher-than-average outstanding balances from the summer deliveries . our traditional business , which refers to our cott north america , cott united kingdom ( cott u.k. ) and all other reporting segments , typically operates at low margins and therefore relatively small changes in cost structures can materially affect results . industry-wide carbonated soft drink ( csd ) sales have declined during 2016 , 2015 , and 2014 and ingredient and packaging costs have remained volatile . ingredient and packaging costs represent a significant portion of our cost of sales . these costs are subject to global and regional commodity price trends . our most significant commodities are aluminum in the case of cans and ends , green coffee , polyethylene terephthalate ( pet ) resin , high-density polyethylene ( hdpe ) and polycarbonate , corn in the case of high fructose corn syrup ( hfcs ) , sugar , fruit and fruit concentrates and fuel . we attempt to manage our exposure to fluctuations in ingredient and packaging costs by entering into fixed price commitments for a portion of our ingredient and packaging requirements and implementing price increases as needed . we supply walmart and its affiliated companies , under annual non-exclusive supply agreements , with a variety of products in north america , the united kingdom , and mexico , including csds , 100 % shelf stable juice and juice-based products , clear , still and sparkling flavored waters , bottled water , energy products , sports products , new age beverages , and ready-to-drink teas . in 2016 , we supplied walmart with all of its private-label csds in the united states . in the event walmart were to utilize additional suppliers to fulfill a portion of its requirements for csds , our operating results could be materially adversely affected . sales to walmart in 2016 , 2015 and 2014 , accounted for 15.7 % , 18.0 % and 26.1 % , respectively , of total revenue . we conduct operations in countries involving transactions denominated in a variety of currencies . we are subject to currency exchange risks to the extent that our costs are denominated in currencies other than those in which we earn revenues . as our financial statements are denominated in u.s. dollars , change in currency exchange rates between the u.s. dollar and other currencies have had , and will continue to have an impact on our results of operations . in 2016 , our capital expenditures were devoted primarily to supporting growth in our business , maintaining existing facilities and making equipment upgrades . at the beginning of 2016 , our business operated through four reporting segments , dss , cott north america , cott u.k. and all other ( which includes our mexico and royal crown international ( rci ) operating segments ) . we completed the aquaterra acquisition during the first quarter of 2016 , and the s & d acquisition and the eden acquisition ( as each term is defined below ) in the third quarter of 2016. these businesses were added to our dss reporting segment , which was then renamed water & coffee solutions to reflect the increased scope of our offering . other than the change in name , there was no impact on prior period results for this reporting segment . the water & coffee solutions reporting segment provides bottled water , coffee and water filtration services to customers in north america , europe , and israel . water & coffee solutions products include bottled water , coffee , brewed tea , water dispensers , coffee and tea brewers and filtration equipment . for the year ended january 3 , 2015 , we had 53 weeks of activity , compared to 52 weeks of activity for the years ended december 31 , 2016 and january 2 , 2016. we estimate the additional week contributed $ 29.1 million of additional revenue and $ 1.1 million of additional operating income for the year ended january 3 , 2015. in addition , for the year ended january 2 , 2016 , we had four additional shipping days in our water & coffee reporting segment , which we estimate contributed $ 12.5 million of additional revenue and $ 0.1 million of additional operating income for the year ended january 2 , 2016 . 33 acquisition and financing transactions mid-to-larger scale acquisitions on august 11 , 2016 , we completed the acquisition of s. & d. coffee , inc. ( s & d ) , a premium coffee roaster and provider of customized coffee , tea , and extract solutions to the foodservice , convenience , gas , hospitality and office segments in the united states ( the s & d acquisition ) . the initial purchase price was $ 354.1 million on a debt- and cash-free basis , subject to customary post-closing adjustments , which were resolved in january 2017 by the payment of $ 0.5 million from the former owners of s & d to us . the s & d acquisition was funded through a combination of incremental borrowings under our asset-based lending facility ( the abl facility ) and proceeds from our june 2016 offering ( defined below ) . story_separator_special_tag we incurred $ 9.2 million of underwriter commissions and $ 1.1 million in professional fees in connection with the june 2016 offering . the net proceeds of the june 2016 offering were used to repay borrowings under our abl facility , to finance the s & d acquisition and for general corporate purposes . on march 9 , 2016 , we completed a public offering , on a bought deal basis , of 12,765,000 common shares at a price of $ 11.80 per share for total gross proceeds to us of $ 150.6 million ( the march 2016 offering ) . we incurred $ 6.0 million of underwriter commissions and $ 0.8 million in professional fees in connection with the march 2016 offering . the net proceeds of the march 2016 offering were used to repay borrowings under our abl facility and for general corporate purposes . in june 2015 , we entered into a sale-leaseback transaction ( the sale-leaseback transaction ) involving five of our manufacturing , production and distribution facilities in north america , pursuant to which we received cash proceeds of $ 40.1 million , after related transaction expenses , and recorded a gain of $ 22.6 million . the facilities are being leased from the buyer-lessor over an initial lease term of 20 years and the lease is classified as an operating lease . we determined we have retained the lease rights to the facilities but not the benefits and risks incident to ownership ; thus $ 21.6 million of the $ 22.6 million gain was deferred , with the remaining $ 1.0 million recognized as a gain on sale in loss on disposal of property , plant & equipment in our consolidated statement of operations for the year ended january 2 , 2016. this deferred gain is being amortized as a reduction to rent expense over the 20-year initial lease term . in may 2015 , we completed a public offering , on a bought deal basis , of 16,215,000 common shares at a price of $ 9.25 per share for total gross proceeds to us of $ 150.0 million ( the 2015 offering ) . we incurred $ 6.0 million of underwriter commissions and $ 1.5 million in professional fees in connection with the 2015 offering . the net proceeds of the 2015 offering were used to redeem all of the preferred shares . as noted above , we issued $ 625.0 million of the 6.75 % senior notes due 2020 in december 2014 to qualified purchasers in a private placement under rule 144a and regulation s under the securities act , and used the proceeds from the issuance to partially finance the dss acquisition . in july 2015 , we exchanged the privately-placed notes for notes that are registered under the securities act and that do not contain transfer restrictions , registration rights or additional interest provisions , but otherwise contain identical economic terms ( the 2020 notes ) . in june 2014 , we issued $ 525.0 million of our 5.375 % senior notes due 2022 to qualified purchasers in a private placement under rule 144a and regulation s under the securities act . we used the proceeds to redeem $ 375.0 million aggregate principal amount of our 8.125 % senior notes due 2018 ( the 2018 notes ) and provide additional funding for company operations . in may 2015 , we exchanged the privately-placed notes for notes that are registered under the securities act and that do not contain transfer restrictions , registration rights or additional interest provisions , but otherwise contain identical economic terms ( the 2022 notes ) . story_separator_special_tag addition of the aimia and dss businesses and cost and efficiency savings , partially offset by the impact of unfavorable foreign exchange rates and the competitive environment in our traditional business ; sg & a expenses increased to $ 768.6 million in 2015 compared to $ 213.7 million in the prior year due primarily to the addition of our dss and aimia businesses . as a percentage of revenue , sg & a expenses increased to 26.1 % from 10.2 % in the prior year ; loss on disposal of property , plant and equipment was related to the disposal of $ 6.9 million of equipment that was either replaced or no longer being used in our reporting segments ; acquisition and integration expenses decreased $ 20.7 million , or 50.1 % , in 2015 compared to the prior year due primarily to the incurrence of a significant portion of the transaction costs in connection with the acquisition of the dss and aimia businesses in the prior year ; other income , net was $ 9.5 million in 2015 compared to other expense , net of $ 21.0 million in the prior year due primarily to net realized gains on translation of balances denominated in foreign currencies and a favorable legal settlement in 2015 compared to expenses incurred due to the redemption of our 2018 notes in the prior year ; interest expense , net was $ 111.0 million in 2015 compared to $ 39.7 million in the prior year due primarily to carrying higher debt balances throughout the year from the dss acquisition as compared to the prior year ; income tax benefit was $ 22.7 million in 2015 compared to $ 61.4 million in the prior year due primarily to the release of the u.s. federal valuation allowance in 2014 ; 36 ebitda increased to $ 332.7 million from $ 105.4 million in 2014 ; adjusted ebitda increased to $ 357.0 million from $ 180.2 million in the prior year due to the items listed above ; adjusted net income and adjusted net income per diluted common share were $ 23.0 million and $ 0.22 , respectively , compared to $ 57.1 million and $ 0.60 , respectively , in the prior year .
| summary financial results our net loss attributed to cott corporation in 2016 was $ 77.8 million or $ 0.61 per diluted common share , compared with net loss of $ 3.4 million or $ 0.03 per diluted common share in 2015. the following items of significance affected our 2016 financial results : net revenue increased $ 291.9 million , or 9.9 % , in 2016 compared to the prior year due primarily to the addition of the s & d , eden , and aquaterra businesses , partially offset by the impact of unfavorable foreign exchange rates , a mix shift from private label to contract manufacturing in our traditional business and four less shipping days compared to the prior year at our dss business . excluding the impact of foreign exchange and four additional shipping days in 2015 , revenue increased $ 373.4 million , or 12.7 % , from the prior year ; gross profit as a percentage of revenue increased to 33.2 % in 2016 compared to 30.4 % in the prior year due primarily to the addition of the eden and aquaterra businesses and cost and efficiency initiatives in our traditional business , partially offset by the impact of unfavorable foreign exchange rates , the competitive landscape within our traditional business and increased operational costs at our dss business ; 35 selling , general and administrative ( sg & a ) expenses increased to $ 958.1 million in 2016 compared to $ 768.6 million in the prior year due primarily to the addition of the s & d , eden and aquaterra businesses . as a percentage of revenue , sg & a expenses increased to 29.6 % from 26.1 % in the prior year ; loss on disposal of property , plant and equipment was related to the disposal of $ 6.1 million of equipment that was either replaced or no longer being used in our reporting segments ; acquisition and integration expenses increased to $ 27.8
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aeti 's actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors , including those set forth in the section entitled “ risk factors ” in this form 10-k. overview our corporate structure currently consists of american electric technologies , inc. , which owns 100 % of both m & i and aat . we report financial data for three operating segments : the tp & s segment and the e & i segment which together encompass the operations of m & i including its south coast electric systems , llc subsidiary and the aat segment which encompasses the operations of american access technologies , inc. including its wholly-owned omega metals division . in addition , m & i holds a 40 % , 41 % , and 49 % interest in china , singapore , and brazil foreign joint ventures ' operations , respectively . prior to december 31 , 2011 , the company owned 49 % of the singapore 's joint venture with our joint venture partner , oakwell engineering , ltd. , owning the remaining 51 % . at december 31 , 2011 , we exchanged 8 % of our miefe ownership for satisfaction of amounts owed to miefe 's general manager , under a deferred compensation arrangement for approximately $ 190,000. in october 2013 , oakwell distribution was acquired by sonepar ( private company ) of france , who is now the owner of the controlling interest in miefe . these ventures are stand-alone operating companies and enhance our ability to provide products to these markets . results from these ventures are reported using the equity method of accounting . 15 we are a leading provider of power delivery solutions to the global energy industry . our customers are in the following industries : · oil & gas · upstream which includes land and offshore drilling , and offshore production , all primarily related to exploration and production ( e & p ) · midstream which includes oil & gas pipelines along with fractionation plants · downstream which includes refining and petrochemical , as well as liquefied natural gas ( lng ) plants · power generation and distribution · distributed power generation such as remote power stations , co-generation , · renewable power generation including solar power , geothermal , biomass , · power distribution including substations · marine and industrial · marine vessel including platform supply vessels ( psv ) , offshore supply vessels ( osv ) , tankers and other various work boats · industrial including non-oil & gas industrial markets such as steel , heavy commercial , and other non-oil & gas segments · a key component of our company 's strategy is our international focus . we have two primary models for conducting our international business . first , we sell directly and through foreign sales agents and distributors that we have appointed . many of those international partners also provide local service and support for our products in those overseas markets . second , where local market conditions dictate , we have expanded internationally by forming joint venture operations with local parties in key markets such as china , brazil and singapore , where there are local content requirements or we need to do local manufacturing . · our business strategy is to grow through organic growth in our key energy markets , expand our solution set to our current market segments , continue our international expansion , and accelerate those efforts with acquisitions . while at the same time increasing earnings and cash flow per share to enhance overall stockholder value . · the company is uniquely positioned to be the “ turn-key ” supplier for power delivery projects for our customers , where we are able to offer custom-designed power distribution and power conversion systems , power services , and electrical and instrumentation construction , all from one company . 16 non-u.s. gaap financial measures a non-u.s. gaap financial measure is generally defined as one that purports to measure historical or future financial performance , financial position or cash flows , but excludes or includes amounts that would not be so adjusted in the most comparable gaap measure . in this report , we define and use the non-u.s. gaap financial measure ebitda as set forth below . ebitda definition of ebitda we define ebitda as follows : net income ( loss ) befo re : · provision ( benefit ) for income taxes ; · non-operating ( income ) expense items ; · depreciation and amortization ; and · dividends on redeemable preferred stock . management 's use of ebitda we use ebitda to assess our overall financial and operating performance . we believe this non- u.s. gaap measure , as we have defined it , is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations . this measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieving optimal financial performance . it provides an indicator for management to determine if adjustments to current spending decisions are needed . ebitda provides us with a measure of financial performance , independent of items that are beyond the control of management in the short-term , such as dividends required on preferred stock , depreciation and amortization , taxation and interest expense associated with our capital structure . this metric measures our financial performance based on operational factors that management can impact in the short-term , namely the cost structure or expenses of the organizati on . ebitda is one of the metrics used by senior management and the board of directors to review the financial performance of the business on a regular basis . ebitda is also used by research analysts and investors to evaluate the performance and value of companies in our industry . limitations of ebitda ebitda has limitations as an analytical tool . story_separator_special_tag story_separator_special_tag normal ; text-indent:4.54 % '' > for the year ended december 31 , 201 3 were $ 2.7 million , or 4 % of net sales and essentially unchanged when compared to 2012. general and administrative expenses were up for the year ended december 31 , 2013 over the same period in 2012 by $ 1.0 million from $ 5.2 million in 2012 to $ 6.2 million in 2013 primarily due to $ 0.7 million related to increase bonus and stock compensation on improved results and increased wages of $ 0.3 million to remain competitive . net equity income from foreign joint ventures was unchanged for the year ended december 31 , 2013 at $ 2.8 million level when compared to the period ended december 31 , 2012. this reflected a downturn primarily from bomay of $ 0.5 million from china 's slowing economy , which was offset by improvement in brazil due to time and materials based jobs with good margins . consolidated other expense , net was $ 0.1 million income for the year ended december 31 , 2013 , a decrease of $ 0.2 million expense from the comparable prior year , primarily due to a gain on sale of houston office facilities and reduction of long-term debt outstanding during the year 2013 compared to 2012. long-term debt was unchanged from $ 0.5 million at the end of 2012 to $ 0.5 million at december 31 , 2013. the ( provision for ) benefit from income taxes for the year ended december 31 , 201 3 was a non-cash expense of $ 0.7 million which reflects the valuation allowance related to the company 's net deferred tax assets related to its u.s. operations . see note 7 to the consolidated financial statements included in this report for further details . the 2013 and 2012 tax accrual represents u.s. taxes on the foreign joint ventures ' equity income less dividends received . year ended december 31 , 2012 compared to year ended december 31 , 2011 consolidated net sales increased $ 2 .1 million or 4 % , to $ 54.1 million for the year ended december 31 , 2012 as compared to 2011. the company 's net sales growth from the comparative prior year period was driven primarily by increased demand for its technical products which was partially offset by declines in electrical instrumentation and construction . these declines in the e & i 20 segment relate primarily to the company 's decision in 2012 to exit the water/wastewater construction business to focus its e & i efforts on more strategic segments including oil & gas , power generation and distribution , and marine and non-oil & gas industrial . consolidated gross profit increased $ 1.0 million to $ 8.1 million and increased as a percentage of net sales from 14 % to 15 % . this increase was mainly attributable to the tp & s segment 's increased net sales and direct margin compared to the previous period in 2011. this performance reflects the improved business environment and benefits of the cost reduction efforts implemented in late 2010. the company 's gross profit reported each quarter in 2012 was $ 1.8 million in the first quarter , $ 2.2 million in the second quarter , $ 1.6 million in the third quarter and $ 2.5 million in the fourth quarter . segment comparisons the tp & s segment ' s net sales increased $ 10.0 million from $ 28.9 million for the year ended december 31 , 2011 , to $ 39.0 million for the year ended december 31 , 2012 , a 35 % improvement . gross profit for the segment for the year ended december 31 , 2012 was $ 6.6 million , an increase of $ 2.1 million over the prior year gross profit of $ 4.6 million . the increase in technical products and services results was driven in large part by increased mid and downstream oil and gas demand for our products and services during 2012 which more than offset a slowdown in the domestic land and offshore rig markets . the e & i segment ' s reported net sales of $ 9.2 million for the year ended december 31 , 2012 , a decrease of $ 6.3 million , or 41 % , compared to the year ended december 21 , 2011. the results reflect our decision to exit the water/wastewater business and focus our electrical and instrumentation construction efforts on markets that are more closely aligned with our overall strategy . gross profit for the e & i segment during the year ended december 31 , 2012 was $ 0.5 million , compared to $ 1.2 million in the corresponding prior year period . gross profit as a percentage of net sales decreased to 6 % from 8 % in the comparable prior period , due to the winding down of existing contractual arrangements and the consolidation of our beaumont and houston construction resources . the aat segment reported net sales of $ 5.9 million for the year ended december 31 , 2012 , down $ 1.6 million , from the comparable prior year period , a 22 % decrease . gross profit decreased by $ 0.4 million in 2012 , from $ 1.3 million in the prior year . gross profit as a perce ntage of net sales decreased to 16 % in 2012 from 18 % in the comparable prior period . the decline in the aat segments revenue and profitability primarily relates to the loss of a key contract . this segment continues to be challenged by competitive pricing due to weakness in the industrial sector and the loss of a key account . research and development costs for the year ended december 31 , 2012 were down to $ 0.1 million from $ 0.6 million in the previous period , all of which related to the continued develop ment of the company 's isis products .
| results of operations the table below summarizes our consolidated net sales and profitability for the years ended december 31 , 2013 , 2012 and 2011 ( dollars in thousands ) : replace_table_token_10_th year ended december 31 , 2013 compared to year ended december 31 , 2012 consolidated net sales increased $ 11.3 million or 21 % , to $ 65.3 million for the year ended december 31 , 2013 as compared to 2012. the company 's net sales growth from the comparative prior year period was driven primarily by increased demand from new 19 customers for our technical products coupled with lesser increases in electrical instrumentation ( e & i ) and construction . the increase in e & i reflects increased work in strategic markets replacing lower revenues from exiting the water/wastewater construction business . consolidated gross profit increased $ 3.7 million to $ 11.8 million and increased as a percentage of net sales from 15 % to 18 % . this increase was mainly attributable to the tp & s segment 's increased net sales and direct margin compared to the previous period in 2012 as well as a strong increase in e & i due to the exit from non-core business in 2012. this performance reflects the improved business environment and increased activity in the company 's strategic markets . the company 's gross profit reported each quarter in 2013 was $ 3.0 million in the first quarter , $ 2.4 million in the second quarter and $ 3.5 million in the fourth quarter . segment comparisons the tp & s segment ' s net sales increased $ 10.2 million from $ 39.0 million for the year ended december 31 , 2012 , to $ 49.2 million for the year ended december 31 , 2013 , a 26 % improvement . gross profit for the segment for the year ended december 31 , 2013 was $ 9.1 million , an increase of $ 2.5 million over the prior year gross profit of $ 6.6 million .
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you should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “ selected consolidated financial data ” and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties , including those described in the section titled “ special note regarding forward looking statements. ” our actual results and the timing of selected events could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below and those set forth under the section titled “ risk factors ” included elsewhere in this report . overview we are a clinical stage biopharmaceutical company pioneering immuno-neurology , a novel therapeutic approach for the treatment of neurodegeneration . immuno-neurology targets immune dysfunction as a root cause of multiple pathologies that are drivers of degenerative brain disorders . we are developing therapies designed to simultaneously counteract these pathologies by restoring healthy immune function to the brain . supporting our scientific approach , our discovery platform enables us to advance a broad portfolio of product candidates , validated by human genetics , which we believe will improve the probability of technical success over shorter development timelines . as a result , in the last six years , we have identified over 120 immune system targets , progressed over ten programs into preclinical research , and advanced four product candidates , al001 , al002 , al003 , and al101 into clinical development . our operations have been financed primarily through the issuance and sale of convertible preferred stock , our collaboration with abbvie , and issuance of common stock upon the completion of our ipo . we completed our ipo in february 2019 , and received $ 168.2 million net proceeds , after deducting underwriting discounts and commissions and offering expenses . we completed a follow-on offering in january 2020 and received $ 224.5 million net proceeds , after deducting underwriting discounts and commissions and estimated offering expenses . to date , we have not had any products approved for sale and have not generated any revenue from product sales nor been profitable . further , we do not expect to generate revenue from product sales until such time , if ever , that we are able to successfully complete the development and obtain marketing approval for one of our product candidates . we will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future . we have incurred net losses in each year since inception and expect to continue to incur net losses for the foreseeable future . our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates . our net losses were $ 105.4 million , $ 52.2 million , and $ 32.5 million for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 219.8 million . substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations . we expect our expenses will increase substantially in connection with our ongoing activities , as we : advance product candidates through preclinical studies and clinical trials ; pursue regulatory approval of product candidates ; hire additional personnel ; operate as a public company ; acquire , discover , validate , and develop additional product candidates ; require the manufacture of supplies for our preclinical studies and clinical trials ; and obtain , maintain , expand , and protect our intellectual property portfolio . 101 components of results of operations revenue we have not generated any revenue from product sales and do not expect to do so in the near future . our revenue to date has been primarily related to the abbvie agreement to co-develop product candidates in two programs in clinical development with abbvie . we recognize revenue related to our research and development grant as the related research services are performed . we recognize revenue from the upfront payments under the abbvie agreement over time as the services are provided . revenues are recognized as the program costs are incurred by measuring actual costs incurred to date compared to the overall total expected costs to satisfy the performance obligation . in addition to receiving the upfront payments , we may also be entitled to development and regulatory milestone payments , opt-in payments for continued development after proof-of-concept for al002 and al003 , and other future payments from profit sharing or royalties after commercialization of product candidates from such programs . we expect that our revenue for the next several years will be derived primarily from the abbvie agreement . we recorded deferred revenue of $ 153.4 million as of december 31 , 2019. the deferred revenue is expected to be recognized over the research and development period of the programs through the completion of proof-of-concept for al002 and al003 . research and development expenses research and development expenses account for a significant portion of our operating expenses . we record research and development expenses as incurred . story_separator_special_tag in addition , on february 7 , 2019 , we completed our ipo through issuing and selling 9,739,541 shares of common stock at a public offering price of $ 19.00 per share , including 489,541 shares sold pursuant to the underwriters ' partial exercise of their option to purchase additional shares , resulting in aggregate net proceeds from the offering of $ 168.2 million , after deducting underwriting discounts and commissions and offering costs . on january 30 , 2020 , we completed a follow-on offering through issuing and selling 9,602,500 shares of common stock at a public offering price of $ 25.00 per share , including 1,252,500 shares sold pursuant to the underwriters ' full exercise of their option to purchase additional shares , resulting in aggregate net proceeds of $ 224.5 million , after deducting underwriting discounts and commissions and estimated offering costs . as of december 31 , 2019 , we had $ 353.1 million of cash , cash equivalents , and marketable securities . as of december 31 , 2019 , we had an accumulated deficit of $ 219.8 million . future funding requirements our primary uses of cash are to fund our operations , which consist primarily of research and development expenditures related to our programs , and to a lesser extent , general and administrative expenditures . we expect our expenses to continue to increase in connection with our ongoing activities , in particular as we continue to advance our product candidates and our discovery programs . in addition , we expect to incur additional costs associated with operating as a public company . based on our current operating plan , we believe that our existing cash , cash equivalents , and marketable securities will enable us to fund our operating expenses and capital expenditure requirements through at least the next 12 months from the filing date of this annual report on form 10-k. we have based this estimate on assumptions that may prove to be wrong , and we could utilize our available capital resources sooner than we currently expect . we may also choose to seek additional financing opportunistically . we expect to need to obtain substantial additional funding in the future for our research and development activities and continuing operations . if we were unable to raise capital when needed or on favorable terms , we would be forced to delay , reduce , or eliminate our research and development programs or future commercialization efforts . our future capital requirements will depend on many factors , including : the timing and progress of preclinical and clinical development activities ; the number and scope of preclinical and clinical programs we decide to pursue ; successful enrollment in and completion of clinical trials ; 106 our ability to establish agreements with third-party manufacturers for clinical supply for our clinical trials and , if our product candidates are approved , commercial manufacturing ; our ability to maintain our current research and development programs and establish new research and development programs ; addition and retention of key research and development personnel ; our efforts to enhance operational , financial , and information management systems , and hire additional personnel , including personnel to support development of our product candidates ; negotiating favorable terms in any collaboration , licensing , or other arrangements into which we may enter and performing our obligations in such collaborations ; the timing and amount of milestone and other payments we may receive under our collaboration arrangements ; our eventual commercialization plans for our product candidates ; the costs involved in prosecuting , defending , and enforcing patent claims and other intellectual property claims , including related to the ongoing arbitration proceeding that we commenced in june 2019 ; and the costs and timing of regulatory approvals . a change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate . furthermore , our operating plans may change in the future , and we may need additional funds to meet operational needs and capital requirements associated with such operating plans . cash flows the following table summarizes our cash flows for the periods indicated ( in thousands ) : replace_table_token_7_th operating activities for the year ended december 31 , 2019 , cash used in operating activities was $ 99.3 million . this was mainly due to the net loss of $ 105.4 million and the decrease in deferred revenue of $ 21.2 million as revenue was recognized related to the abbvie agreement . this was offset by a non-cash charges of $ 16.3 million for stock-based compensation and $ 3.8 million for depreciation and amortization expense . we also had an increase of $ 9.2 million in accrued liabilities and accrued clinical supply costs . for the year ended december 31 , 2018 , cash provided by operating activities was $ 127.5 million . the net cash inflow from operations primarily resulted from the receipt of a $ 200.0 million upfront payment from abbvie in january 2018 , that was reflected as a net increase in deferred revenue of $ 172.5 million during the period . this was mainly offset by net loss of $ 52.2 million . in addition , the company had a non-cash charge of $ 6.9 million for stock-based compensation . for the year ended december 31 , 2017 , cash used in operating activities was $ 17.8 million . the net cash outflow from operations primarily resulted from our net loss of $ 32.5 million offset by a non-cash charge of $ 6.0 million and an increase in net operating assets and liabilities of $ 8.7 million . the non-cash charge consisted primarily of $ 5.4 million for stock-based compensation .
| results of operations comparison of the years ended december 31 , 2019 and 2018 replace_table_token_3_th 103 revenue total revenue was $ 21.2 million for the year ended december 31 , 2019 , compared to $ 27.7 million for the year ended december 31 , 2018. we recognize revenue from the upfront payments under the abbvie agreement over time as the services are provided . revenues are recognized as the program costs are incurred by measuring actual costs incurred to date compared to the overall total expected costs to satisfy the performance obligation . changes in estimates for revenue recognized over time are recognized on a cumulative basis . revenue decreased by $ 6.5 million , primarily due to an increase in total expected costs for the al002 and al003 programs through the completion of proof-of-concept . research and development expenses research and development expenses were $ 100.5 million for the year ended december 31 , 2019 , compared to $ 73.0 million for the year ended december 31 , 2018. the increase of $ 27.5 million was driven by an $ 11.8 million increase in personnel-related expenses , including stock-based compensation , due to an increase in headcount and issuance of option grants to employees . there was a $ 6.3 million increase in facilities and other unallocated research and development related to the lease expense for the new headquarters and higher depreciation expense due to purchase of property and equipment . expenses for al101 increased by $ 5.0 million as we did not incur any expenses for al101 until the second quarter of 2018 and this year we began clinical trials in the fourth quarter of 2019. in addition , expenses increased by $ 3.7 million for other early stage programs as we continue to invest in developing our pipeline .
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customer equipment and shipping revenue customer equipment and shipping revenues consist of revenues from sales of customer equipment to wholesalers or directly to customers for replacement devices , or for upgrading their device at the time of customer sign-up for which we charge an additional fee . in addition , customer equipment and shipping revenues include revenues from the sale of voip telephones in order to access our small and medium business services . customer equipment and shipping revenues also include the fees that customers are charged for shipping their customer equipment to them . customer equipment and shipping revenues include sales to our retailers , who subsequently resell this customer equipment to customers . revenues are reduced for payments to retailers and rebates to customers , who purchased their customer equipment through these story_separator_special_tag you should read the following discussion together with “ selected financial data ” and our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements , which involve risks and uncertainties . our actual results may differ materially from those we currently anticipate as a result of many factors , including the factors we describe under “ item 1a—risk factors , ” and elsewhere in this annual report on form 10-k. overview we are a leading provider of cloud communications services for businesses and consumers . our business services transform the way people work and businesses operate through a portfolio of communications solutions that enable internal collaboration among employees , while also keeping companies closely connected with their customers , across any mode of communication , on any cloud-connected device . vonage customers can choose among or combine two separate service delivery options to suit their specific cloud communication needs . they can buy vonage business as a subscription and they can buy our vonage api platform and consume our cloud communication as a service product as programmable modules , delivered via application program interfaces ( “ apis ” ) . we also provide a robust suite of feature-rich residential communication solutions . business for our business customers , we provide innovative , cloud-based unified communications as a service , or ucaas , solutions , comprised of integrated voice , text , video , data , collaboration , and mobile applications over our flexible , scalable session initiation protocol ( sip ) based voice over internet protocol , or voip , network . through our acquisition of nexmo in 2016 , we also offer communications platform as a service , or cpaas , solutions designed to enhance the way businesses communicate with their customers by embedding communications into apps , websites and business processes . in combination , our products and services permit our business customers to communicate with their customers and employees through any cloud-connected device , in any place , at any time without the often costly investment required with on-site equipment . we have a robust set of product families tailored to serve the full range of the business value chain , from the small and medium business , or smb , market , through mid-market and enterprise markets . we provide customers with multiple deployment options , designed to provide the reliability and quality of service they demand . we provide customers the ability to integrate our cloud communications platform with many cloud-based productivity and crm solutions , including google 's g suite , zendesk , salesforce 's sales cloud , oracle , and clio . our business strategy is to support the full range of business customers , using two product families : vonage essentials , based on our proprietary call processing platform that is purpose-built for smb and mid-market customers ; and vonage premier , based on broadsoft 's call processing platform in combination with other vonage cloud based solutions , which serves larger customers , from mid-market businesses through large enterprises . we also organized our salesforce to address the full business market . we believe operating two platforms at scale enables us to deliver the right products and solutions to address the needs of diverse customers while maximizing our subscriber economics , regardless of segment served . revenues are generated primarily through the sale of subscriptions for our ucaas services . our revenue generation efforts are focused on customer acquisition and retention as well as providing additional services to existing customers as they grow and scale . our diverse customer base spans a wide variety of industries , including manufacturing , automotive , legal , information technology , financial services , construction , real estate , engineering , healthcare , and non-profit . vonage essentials . vonage essentials customers subscribe to our cloud-based communication services , delivered through our proprietary platform that is purpose-built for smb and mid-market customers . essentials provides a cost-effective , scalable , feature-rich solution , delivered over-the-top of a customer 's broadband , typically month-to-month without a commitment . vonage essentials is sold primarily through our direct telesales and online channels , and is increasingly sold through our channel partners and field sales teams . we believe the strength of the vonage brand directly contributes to a lower-cost customer acquisition model and provides attractive subscriber economics . vonage premier . our vonage premier offerings are tailor-made for the large mid-market and enterprise segments . vonage premier is a feature-rich/fully managed solution that utilizes broadsoft inc. 's ( `` broadsoft '' ) enterprise-grade call processing platform , in combination with other cloud services like advanced contact center , video conferencing and speak2dial , and can be provided with high-level quality of service ( `` qos '' ) , which is generally delivered over our national mpls network , with 21 network points of presence ( pops ) across the country . vonage can also provide qos-level quality over-the-top of the customer 's broadband through our smart-wan router solution . customers value our proprietary provisioning and feature-management tool , named zeus , which enables the rapid deployment of solutions directly by vonage while giving full visibility to our channel partners and our customers . story_separator_special_tag in addition , our competitors have partnered and may in the future partner with other competitors to offer products and services , leveraging their collective competitive positions . we also are subject to the risk of future disruptive technologies . in connection with our emphasis on the international long distance market in the united states , we face competition from low-cost international calling cards and voip providers in addition to traditional telephone companies , cable companies , and wireless companies , each of which may implement promotional pricing targeting international long distance callers . regulation . our business has developed in a relatively lightly regulated environment . the united states and other countries , however , are examining how voip services should be regulated . in particular , state telecommunications regulators continue to try to regulate voip service despite the fcc 's 2004 vonage preemption order that preempted state regulation . for example , on july 28 , 2015 , the minnesota public utility commission found that it has authority to regulate charter 's ‘ fixed ' interconnected voip service . in addition to regulatory matters that directly address voip , a number of other regulatory initiatives could impact our business . one such regulatory initiative is net neutrality . on february 26 , 2015 , the fcc adopted strong net neutrality rules . on june 14 , 2016 , the d.c. circuit of appeals denied the upheld these rules . several parties requested rehearing en banc . these petitions are currently pending . see also the discussion under `` regulation '' in note 10 to our financial statements for a discussion of regulatory issues that impact us . key operating data through our acquisitions of vocalocity , telesphere , simple signal , icore , and nexmo , our business has substantially evolved in recent quarters , with business customers now accounting for a substantial and growing portion of overall revenues . to reflect this evolution , we have made certain changes to our key operating data and income statement presentation to provide greater visibility into the operating metrics of the business . the key changes to the income statement include the combination of sales and marketing expenses into a new sales and marketing caption , separated from selling , general , and administrative expenses . a new line item entitled engineering and development has also been created , reflecting the cost of developing new products and technologies and supporting our service platforms . the remaining selling , general and administrative expenses after the above reclassifications have been renamed general and administrative expenses . the reclassifications have been reflected in all periods presented and had no impact on net earnings previously reported . the table below includes key operating data that our management uses to measure the growth and operating performance of the business focused portion of our business : replace_table_token_6_th ( 1 ) includes revenues of $ 58,148 from cpaas for the year ended december 31 , 2016 . ( 2 ) ucaas only . 29 vonage annual report 2016 ( 3 ) cpaas only . revenues . business revenues includes revenues from our business customers from acquired entities and excludes revenues from our legacy business customers . average monthly revenues per seat . average monthly revenues per seat for a particular period is calculated by dividing our revenues for that period by the simple average number of seats for the period , and dividing the result by the number of months in the period . the simple average number of seats for the period is the number of seats on the first day of the period , plus the number of seats on the last day of the period , divided by two . our average monthly revenues per seat increased from $ 42.79 for 2015 to $ 44.94 for 2016 due to our successful acquisitions and subsequent organic growth in the mid-market and enterprise space . seats . seats include , as of a particular date , all paid seats from which a customer can make an outbound telephone call on that date and virtual seats . seats exclude electronic fax lines and toll free numbers , which do not allow outbound telephone calls by customers . seats increased from 541,884 as of december 31 , 2015 to 638,096 as of december 31 , 2016 . this increase is due to continued growth in our business customers as we have increased marketing investment to attract these more profitable customers . it also includes 48,920 seats existing at telesphere at the time of acquisition , 35,256 seats existing at simple signal at the time of acquisition , and 86,309 seats existing at icore at the time of acquisition . revenue churn . revenue churn is calculated by dividing the monthly recurring revenue from customers that have terminated during a period by the simple average of the total monthly recurring revenue from all customers in a given period . the simple average of total monthly recurring revenue from all customers during the period is the total monthly recurring revenue on the first day of the period , plus the total monthly recurring revenue on the last day of the period , divided by two . terminations , as used in the calculation of churn statistics , do not include customers terminated during the period if termination occurred within the first month after activation . other companies may calculate revenue churn differently , and their revenue churn data may not be directly comparable to ours . revenue churn increased from 1.2 % for the year ended 2015 to 1.4 % for the year ended 2016 . revenue churn was flat at 1.4 % for the three months ended december 31 , 2016 and for the three months ended september 30 , 2016 , and increased from 1.1 % for the three months ended december 31 , 2015 . our revenue churn will fluctuate over time due to economic conditions , loss of customers who are acquired , and competitive pressures including promotional pricing .
| quarterly results of operations the following table sets forth quarterly statement of operations data . we derived this data from our unaudited consolidated financial statements , which we believe have been prepared on substantially the same basis as our audited consolidated financial statements . the operating results in any quarter are not necessarily indicative of the results that may be expected for any future period . replace_table_token_19_th 40 vonage annual report 2016 replace_table_token_20_th ( 1 ) excludes depreciation and amortization of $ 5,724 , $ 6,005 , $ 6,415 , and $ 6,724 for the quarters ended march 31 , june 30 , september 30 and december 31 , 2015 , respectively , and $ 6,833 , $ 6,985 , $ 7,460 , and $ 7,211 for the quarters ended march 31 , june 30 , september 30 and december 31 , 2016 , respectively . ( 2 ) includes revenues from cpaas of $ 7,698 , $ 23,909 , and $ 26,541 for the quarters ended june 30 , 2016 , september 30 , 2016 , and december 31 , 2016 , respectively . ( 3 ) ucaas only . ( 4 ) cpaas only . ( 5 ) the quarter ended june 30 , 2015 includes the impacts of the acquisition of simple signal , which was completed on april 1 , 2015 . ( 6 ) the quarter ended september 30 , 2015 includes the impacts of the acquisition of icore , which was completed on august 31 , 2015 . ( 7 ) the quarter ended june 30 , 2016 includes the impacts of the acquisition of nexmo , which was completed on june 3 , 2016. liquidity and capital resources overview the following table sets forth a summary of our cash flows for the periods indicated : replace_table_token_21_th for the three years ended december 31 , 2016 , 2015 , and 2014 we generated income from operations .
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we compete in the u.s. , bermuda and international reinsurance and insurance markets with numerous global competitors . our competitors include independent reinsurance and insurance companies , subsidiaries or affiliates of established worldwide insurance companies , reinsurance departments of certain insurance companies , domestic and international underwriting operations , including underwriting syndicates at lloyd 's of london and certain government sponsored risk transfer vehicles . some of these competitors have greater financial resources than we do and have established long term and continuing business relationships , which can be a significant competitive advantage . in addition , the lack of strong barriers to entry into the reinsurance business and recently , the securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition . worldwide insurance and reinsurance market conditions historically have been competitive . generally , there was ample insurance and reinsurance capacity relative to demand , as well as , additional capital from the capital markets through insurance linked financial instruments . these financial instruments such as side cars , catastrophe bonds and collateralized reinsurance funds , provided capital markets with access to insurance and reinsurance risk exposure . the capital markets demand for these products was being primarily driven by a low interest environment and the desire to achieve greater risk diversification and potentially higher returns on their investments . this increased competition was generally having a negative impact on rates , terms and conditions ; however , the impact varies widely by market and coverage . the industry continues to deal with the impacts of a global pandemic , covid-19 . globally , many countries mandated that their citizens remain at home and many non-essential businesses have continued to be physically closed . we activated our operational resiliency plan across our global footprint and all of our critical operations are functioning effectively from remote locations . we continue to service and meet the needs of our clients while ensuring the safety and health of our employees and customers . the pandemic has caused significant volatility in the global financial markets . interest rates plummeted , credit spreads widened and the equity markets lost value . we saw our fixed maturity and equity portfolios decline in value resulting in realized and unrealized investment losses in our march 31 , 2020 financial statements . however , the financial markets rebounded during the remaining quarters of 2020 and we recognized after-tax realized gains of $ 389.4 million and unrealized gains of $ 667.7 million in our financial statements for these three quarters . nevertheless , the lack of business activity may lead to an increase in bankruptcies and corresponding credit losses . 44 there will also be a negative impact on future industry underwriting results . with the closing of non-essential businesses , there has been a significant decline in business activity . to the extent that premiums are based on business activity , there will be a decline in premium volume . incurred losses from the pandemic will be impacted by the duration of the event and will vary by line of business and geographical location . for the full year 2020 , our underwriting results include $ 511.1 million of estimated losses related to the pandemic . many regulators had issued moratoriums on the cancellation of policies for the non-payment of premiums and also on non-renewals . we are complying with the various regulatory requests for accommodations to policyholders during this difficult period . the moratoriums combined with the forced closure of businesses may lead to an increase in uncollectible premium expense . prior to the pandemic , there was a growing industry consensus that there was some firming of ( re ) insurance rates for the areas impacted by the recent catastrophes . the increased frequency of catastrophe losses in 2020 appears to be further pressuring the increase of rates . rates also appear to be firming in some of the casualty lines of business , particularly in the casualty lines that had seen significant losses such as excess casualty and directors ' and officers ' liability . other casualty lines are experiencing modest rate increase , while some lines such as workers ' compensation were experiencing softer market conditions . it is too early to tell what will be the impact on pricing conditions but it is likely to change depending on the line of business and geography . while we are unable to predict the full impact the pandemic will have on the insurance industry as it continues to have a negative impact on the global economy , we are well positioned to continue to service our clients . our capital position remains a source of strength , with high quality invested assets , significant liquidity and a low operating expense ratio . our diversified global platform with its broad mix of products , distribution and geography is resilient . 45 financial summary . we monitor and evaluate our overall performance based upon financial results . the following table displays a summary of the consolidated net income ( loss ) , ratios and shareholders ' equity for the periods indicated . years ended december 31 , percentage increase/ ( decrease ) ( dollars in millions ) 2020 2019 2018 2020/2019 2019/2018 gross written premiums $ 10,482.4 $ 9,133.4 $ 8,475.2 14.8 % 7.8 % net written premiums 9,117.0 7,824.4 7,414.4 16.5 % 5.5 % revenues : premiums earned $ 8,681.5 $ 7,403.7 $ 6,931.7 17.3 % 6.8 % net investment income 642.5 647.1 581.2 ( 0.7 ) % 11.3 % net realized capital gains ( losses ) 267.6 185.0 ( 127.1 ) 44.7 % nm other income ( expense ) 6.5 ( 4.6 ) ( 24.3 ) ( 39.2 ) % ( 81.1 ) % total revenues 9,598.1 8,231.2 7,361.5 16.6 % 11.8 % claims and expenses : incurred losses and loss adjustment expenses 6,550.8 4,922.9 5,651.4 33.1 % ( 12.9 ) % commission , brokerage , taxes and fees 1,873.3 1,703.7 1,519.0 10.0 % 12.2 % other underwriting expenses 511.2 440.9 371.5 16.0 % 18.7 % corporate expenses 41.1 33.0 30.7 24.7 % 7.5 % interest , story_separator_special_tag million of net losses from fair value re-measurements , $ 51.7 million of net realized capital losses from sales of investments and $ 8.1 million of other-than-temporary impairments . other income ( expense ) . we recorded other income of $ 6.5 million in 2020 and other expense of $ 4.6 million and $ 24.3 million in 2019 and 2018 , respectively . t he changes were primarily the result of fluctuations in foreign currency exchange rates , income related to mt . logan re , changes in value of equity put option 47 contracts and changes in deferred gains related to any retroactive reinsurance transactions . we recognized foreign currency exchange expense of $ 7.3 million in 2020 , foreign currency exchange expense of $ 13.4 million in 2019 and foreign currency exchange income of $ 2.4 million in 2018. claims and expenses . incurred losses and loss adjustment expenses . the following table presents our incurred losses and loss adjustment expenses ( “ lae ” ) for the periods indicated . years ended december 31 , current ratio % / prior ratio % / total ratio % / ( dollars in millions ) year pt change years pt change incurred pt change 2020 attritional $ 5,724.4 66.0 % $ 401.4 4.7 % $ 6,125.8 70.7 % catastrophes 425.0 4.9 % — — % 425.0 4.9 % total segment $ 6,149.4 70.9 % $ 401.4 4.7 % $ 6,550.8 75.5 % 2019 attritional $ 4,441.0 60.0 % $ ( 93.6 ) ( 1.3 ) % $ 4,347.4 58.7 % catastrophes 545.5 7.4 % 30.0 0.4 % 575.5 7.8 % total segment $ 4,986.5 67.4 % $ ( 63.6 ) ( 0.9 ) % $ 4,922.9 66.5 % 2018 attritional $ 4,025.4 58.0 % $ ( 174.1 ) ( 2.5 ) % $ 3,851.2 55.5 % catastrophes 1,239.0 17.9 % 561.2 8.1 % 1,800.2 26.0 % total segment $ 5,264.3 75.9 % $ 387.1 5.6 % $ 5,651.4 81.5 % variance 2020/2019 attritional $ 1,283.4 6.0 pts $ 495.0 6.0 pts $ 1,778.4 12.0 pts catastrophes ( 120.5 ) ( 2.5 ) pts ( 30.0 ) ( 0.4 ) pts ( 150.5 ) ( 2.9 ) pts total segment $ 1,162.9 3.5 pts $ 465.0 5.6 pts $ 1,627.9 9.0 pts variance 2019/2018 attritional $ 415.6 2.0 pts $ 80.6 1.2 pts $ 496.2 3.2 pts catastrophes ( 693.5 ) ( 10.5 ) pts ( 531.2 ) ( 7.7 ) pts ( 1,224.7 ) ( 18.2 ) pts total segment $ ( 277.9 ) ( 8.5 ) pts $ ( 450.6 ) ( 6.5 ) pts $ ( 728.5 ) ( 15.0 ) pts ( some amounts may not reconcile due to rounding . ) incurred losses and lae increased by 33.1 % to $ 6,550.8 million in 2020 , compared to $ 4,922.9 million in 2019 , primarily due to a rise of $ 1,283.4 million in current year attritional losses , mainly due to $ 511.1 million of losses related to the covid-19 pandemic and the impact of the increase in premiums earned , as well as $ 495.0 million of less favorable development on prior years attritional losses in 2020 , which primarily resulted from $ 400.0 of reserve strengthening in the fourth quarter of 2020 associated with higher ultimate loss estimates for long-tail casualty business in the reinsurance segment for accident years 2015 to 2018 , notably general liability , professional lines and auto liability . the reserve charge also includes actions on non-cat property lines , primarily for the 2017 to 2019 accident years and driven by a few large losses to aggregate programs . the increase was partially offset by a decrease of $ 120.5 million in current year catastrophe losses . the current year catastrophe losses of $ 425.0 million in 2020 related to hurricane laura ( $ 124.0 million ) , the northern california wildfires ( $ 44.1 million ) , hurricane zeta ( $ 40.0 million ) , hurricane sally ( $ 32.8 million ) , the california glass wildfire ( $ 29.5 million ) , nashville tornadoes ( $ 22.9 million ) , the derecho storms ( $ 20.5 million ) , hurricane isaias ( $ 20.0 million ) , hurricane delta ( $ 20.0 million ) , the oregon wildfires ( $ 17.0 million ) , the calgary storms in canada ( $ 14.7 million ) , the 2020 u.s. civil unrest ( $ 14.5 million ) , the queensland hailstorm ( $ 10.0 million ) , the 2020 australia fires ( $ 8.2 million ) and the australia east coast storm ( $ 6.8 million ) . the $ 545.5 million of current year catastrophe losses in 2019 related to typhoon hagibis ( $ 200.0 million ) , hurricane dorian ( $ 170.9 48 million ) , typhoon faxai ( $ 124.3 million ) , townsville monsoon ( $ 25.3 million ) , and the dallas tornadoes ( $ 25.0 million ) . incurred losses and lae decreased by 12.9 % to $ 4,922.9 million in 2019 , compared to $ 5,651.4 million in 2018 , primarily due to a decrease in current year catastrophe losses of $ 693.5 million and $ 531.2 million less of unfavorable development on prior years catastrophe losses in 2019 compared to 2018. these decreases were partially offset by an increase of $ 415.6 million in current year attritional losses , mainly due to the impact of the increase in premiums earned and changes in the mix of business , and $ 80.6 million less of favorable development on prior years attritional losses in 2019 compared to 2018. the current year catastrophe losses of $ 545.5 million in 2019 are outlined above .
| consolidated investment results net investment income . net investment income decreased by 0.7 % to $ 642.5 million in 2020 compared with investment income of $ 647.1 million in 2019. the decrease was primarily due to lower income from short term investments primarily due to lower interest rates resulting from the market impacts of covid-19 , partially offset by an increase in limited partnership income and higher income from the growing fixed income portfolio . 50 net investment income increased by 11.3 % to $ 647.1 million in 2019 compared with investment income of $ 581.2 million in 2018. the increase was primarily due to higher income from our growing fixed maturity portfolio and an increase in limited partnership income , partially offset by lower dividend income from our equity portfolio . the following table shows the components of net investment income for the periods indicated . years ended december 31 , ( dollars in millions ) 2020 2019 2018 fixed maturities $ 542.4 $ 520.3 $ 465.8 equity securities 18.8 19.5 25.3 short-term investments and cash 5.0 17.6 14.4 other invested assets limited partnerships 112.9 105.8 93.3 other 1.7 14.1 17.0 gross investment income before adjustments 680.7 677.3 615.8 funds held interest income ( expense ) 12.8 13.3 6.3 future policy benefit reserve income ( expense ) ( 1.2 ) < td style= '' vertical-align : bottom ; width : 2 % ; background : # cceeff ; padding-top : 0 ; padding-right : 0 ; padding-bottom : 0 ; padding-left : 0 ;
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risk factors ” and “ introductory note — cautionary note regarding forward-looking statements ” . our actual results may differ materially from those contained in or implied by any forward-looking statements . 41 our fiscal year ends march 31 and , unless otherwise noted , references to years or fiscal are for fiscal years ended march 31. see “ — results of operations. ” overview we are a leading provider of management and technology consulting , engineering , analytics , digital solutions , mission operations , and cyber expertise to u.s. and international governments , major corporations , and not-for-profit organizations . our ability to deliver value to our clients has always been , and continues to be , a product of the strong character , deep expertise and tremendous passion of our people . our talent base of approximately 23,300 employees endeavor to solve problems that matter by making clients ' missions their own , combining decades of consulting and domain expertise with functional expertise in areas such as analytics , digital solutions , engineering , and cyber , all fostered by a culture of innovation that extends to all reaches of the company . through our dedication to our clients ' missions , and a commitment to evolving our business to address client needs , we have longstanding and deep relationships with our clients , some more than 75 years . we support critical missions for a diverse base of federal government clients , including nearly all of the u.s. government 's cabinet-level departments , as well as increasingly for top-tier commercial and international clients . we support these clients by helping them tackle their most complex and pressing challenges such as protecting soldiers in combat and supporting their families , advancing cyber capabilities , keeping our national infrastructure secure , enabling and enhancing digital services , transforming the healthcare system , and improving government efficiency to achieve better outcomes . our u.s. commercial clients are primarily in the financial services , healthcare and life sciences , energy , high-tech manufacturing , retail , and automotive industries . our international clients are primarily in the middle east , along with a growing presence in southeast asia . financial and other highlights during fiscal 2017 , the company continued to invest in its long term growth strategy by investing in key capabilities and markets while also increasing headcount to deploy against the strong pipeline of captured opportunities that translated into an increase in total backlog . revenue increased 7.4 % from fiscal 2016 to fiscal 2017 primarily driven by stronger client demand , as evidenced by our backlog growth . the increase in client demand coupled with our increased client staff headcount and staff billability , resulted in increases in our direct labor and corresponding generation of revenue growth . revenue growth was also driven by an increase in billable expenses , including subcontractors and direct material and other direct cost purchases for clients . operating income increased 8.9 % to $ 484.2 million in fiscal 2017 from $ 444.6 million in fiscal 2016 , which reflects an increase in operating margin to 8.3 % from 8.2 % in the comparable period . the increases in operating income and operating margin were primarily the result of the same factors driving revenue as well as positive results from improved contract performance and profitability , management 's focus on indirect spending reduction initiatives , and efficiencies in general and administrative activities . operating income was also impacted by slightly higher year-over-year net favorable revenue adjustments on contracts accounted for under the percentage of completion method along with the overall increase in revenue discussed above . these increases in operating income were partially offset by a reduction in the net decrease in the company 's provisions for the potential recovery of allowable expenses recorded during fiscal 2017 as compared to fiscal 2016 , as well as an increase in certain non-routine business transaction costs . 42 non gaap measures we publicly disclose certain non-gaap financial measurements , including revenue , excluding billable expenses , adjusted operating income , adjusted ebitda , adjusted ebitda margin , adjusted net income , and adjusted diluted earnings per share , or adjusted diluted eps , because management uses these measures for business planning purposes , including to manage our business against internal projected results of operations and measure our performance . we view adjusted operating income , adjusted ebitda , adjusted ebitda margin , adjusted net income , and adjusted diluted eps as measures of our core operating business , which exclude the impact of the items detailed below , as these items are generally not operational in nature . these non-gaap measures also provide another basis for comparing period to period results by excluding potential differences caused by non-operational and unusual or non-recurring items . in addition , we use revenue , excluding billable expenses because it provides management useful information about the company 's operating performance by excluding the impact of costs that are not indicative of the level of productivity of our consulting staff headcount and our overall direct labor , which management believes provides useful information to our investors about our core operations . we also utilize and discuss free cash flow , because management uses this measure for business planning purposes , measuring the cash generating ability of the operating business , and measuring liquidity generally . we present these supplemental measures because we believe that these measures provide investors and securities analysts with important supplemental information with which to evaluate our performance , long term earnings potential , or liquidity , as applicable , and to enable them to assess our performance on the same basis as management . these supplemental performance measurements may vary from and may not be comparable to similarly titled measures by other companies in our industry . story_separator_special_tag ” business environment and key trends in our markets we believe that the following trends and developments in the u.s. government services industry and our markets may influence our future results of operations : uncertainty around the timing , extent , nature and effect of congressional and other u.s. government actions to address budgetary constraints , caps on the discretionary budget for defense and non-defense departments and agencies , as established by the bipartisan budget control act of 2011 and subsequently adjusted by the american tax payer relief act of 2012 , the bipartisan budget act of 2013 and the bipartisan budget act of 2015 , and the ability of congress to determine how to allocate the available budget authority and pass appropriations bills to fund both u.s. government departments and agencies that are , and those that are not , subject to the caps . budget deficits and the growing u.s. national debt increasing pressure on the u.s. government to reduce federal spending across all federal agencies together with associated uncertainty about the size and timing of those reductions ; cost cutting and efficiency initiatives , current and future budget restrictions , continued implementation of congressionally mandated automatic spending cuts and other efforts to reduce u.s. government spending , could cause clients to reduce or delay funding for orders for services or invest appropriated funds on a less consistent or rapid basis or not at all , particularly when considering long-term initiatives and in light of uncertainty around congressional efforts to approve funding of the u.s. government and to craft a long-term agreement on the u.s. government 's ability to incur indebtedness in excess of its current limits and generally in the current political environment , there is a risk that clients will not issue task orders in sufficient volume to reach current contract ceilings , alter historical patterns of contract awards , including the typical increase in the award of task orders or completion of other contract actions by the u.s. government in the period before the end of the u.s. government 's fiscal year on september 30 , delay requests for new proposals and contract awards , rely on short-term extensions and funding of current contracts , or reduce staffing levels and hours of operation ; delays in the completion of future u.s. government 's budget processes , which have in the past and could in the future delay procurement of the products , services , and solutions we provide ; changes in the relative mix of overall u.s. government spending and areas of spending growth , with lower spending on homeland security , intelligence and defense-related programs as certain overseas operations end , and continued increased spending on cyber-security , command , control , communications , computers , intelligence , surveillance , and reconnaissance ( c4isr ) , advanced analytics , technology integration and healthcare ; legislative and regulatory changes to limitations on the amount of allowable executive compensation permitted under flexibly priced contracts following adoption of interim rules adopted by federal agencies implementing a section of the bipartisan budget act of 2013 , which substantially further reduce the amount of allowable executive compensation under these contracts and extend these limitations to a larger segment of our executives and our entire contract base ; efforts by the u.s. government to address organizational conflicts of interest and related issues and the impact of those efforts on us and our competitors ; increased audit , review , investigation and general scrutiny by u.s. government agencies of government contractors ' performance under u.s. government contracts and compliance with the terms of those contracts and applicable laws ; 46 the federal focus on refining the definition of “ inherently governmental ” work , including proposals to limit contractor access to sensitive or classified information and work assignments , which will continue to drive pockets of insourcing in various agencies , particularly in the intelligence market ; negative publicity and increased scrutiny of government contractors in general , including us , relating to u.s. government expenditures for contractor services and incidents involving the mishandling of sensitive or classified information ; u.s. government agencies awarding contracts on a technically acceptable/lowest cost basis , which could have a negative impact on our ability to win certain contracts ; increased competition from other government contractors and market entrants seeking to take advantage of certain of the trends identified above , and industry trend towards consolidation , which may result in the emergence of companies that are better able to compete against us ; cost cutting and efficiency and effectiveness efforts by u.s. civilian agencies with a focus on increased use of performance measurement , “ program integrity ” efforts to reduce waste , fraud and abuse in entitlement programs , and renewed focus on improving procurement practices for and interagency use of it services , including through the use of cloud based options and data center consolidation ; restrictions by the u.s. government on the ability of federal agencies to use lead system integrators , in response to cost , schedule and performance problems with large defense acquisition programs where contractors were performing the lead system integrator role ; increasingly complex requirements of the department of defense and the u.s. intelligence community , including cyber-security , managing federal health care cost growth and focus on reforming existing government regulation of various sectors of the economy , such as financial regulation and healthcare ; increasing small business regulations across the department of defense and civilian agency clients continue to gain traction-agencies are required to meet high small business set aside targets , and large business prime contractors are required to subcontract in accordance with considerable small business participation goals necessary for contract award ; and changes in agency and mission priorities anticipated in the department of defense and civilian agency landscape with the presidential and administration transition . sources of revenue substantially all of our revenue is derived from services provided under contracts and task orders with the u.s. government , primarily by our consulting staff and , to a lesser extent , our subcontractors .
| results of operations the following table sets forth items from our consolidated statements of operations for the periods indicated : replace_table_token_13_th nm - not meaningful fiscal 2017 compared to fiscal 2016 revenue revenue increased to $ 5,804.3 million from $ 5,405.7 million , or a 7.4 % increase , primarily driven by stronger client demand , as evidenced by our backlog growth . the increase in client demand coupled with our increased client staff headcount and staff billability , resulted in increases in our direct labor and corresponding generation of revenue growth . revenue growth was also driven by an increase in billable expenses , including subcontractors and direct material and other direct cost purchases for clients . conversions to funded backlog during fiscal 2017 totaled $ 5.9 billion in comparison to $ 5.4 billion for the comparable year with the increase from fiscal 2016 to fiscal 2017 due to the conversion of unfunded backlog to funded backlog , the award of new contracts and task orders under which funding was appropriated , and the subsequent funding of priced options . cost of revenue cost of revenue increased to $ 2,692.0 million from $ 2,580.0 million , or a 4.3 % increase . this increase was primarily due to an increase in salaries and salary-related benefits of $ 98.4 million and an increase in incentive compensation of $ 5.4 million . the increase in salaries and salary-related benefits was driven by an increase in headcount growth , annual base salary increases and consulting staff spending more time on direct contract activities . cost of revenue as a percentage of revenue was 46.4 % and 47.7 % in fiscal 2017 and fiscal 2016 , respectively . billable expenses billable expenses increased to $ 1,751.1 million from $ 1,513.1 million , or a 15.7 % increase .
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overview of business the company is one of the world 's largest producers of high‑performance nickel‑ and cobalt‑based alloys in flat product form , such as sheet , coil and plate . the company is focused on developing , manufacturing , marketing and distributing technologically advanced , high‑performance alloys , which are used primarily in the aerospace , chemical processing and industrial gas turbine industries . the global specialty alloy market consists of three primary sectors : stainless steel , general-purpose nickel alloys and high‑performance nickel- and cobalt‑based alloys . the company competes primarily in the high‑performance nickel- and cobalt‑based alloy sector , which includes high‑temperature resistant alloys , or hta products , and corrosion‑resistant alloys , or cra products . the company believes it is one of the principal producers of high‑performance alloy flat products in sheet , coil and plate forms . the company also produces its products as seamless and welded tubulars and in bar , billet and wire forms . the company has manufacturing facilities in kokomo , indiana ; arcadia , louisiana ; and mountain home , north carolina . the kokomo facility specializes in flat products , the arcadia facility specializes in tubular products and the mountain home facility specializes in wire and bar products . the company distributes its products primarily through its direct sales organization , which includes 12 service and or sales centers in the united states , europe and asia . all of these centers are company‑operated . 35 overview of markets the following table includes a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown . replace_table_token_8_th ( 1 ) other revenue consists of toll conversion , royalty income , scrap sales and revenue recognized from the timet agreement ( see note 16 in the notes to the consolidated financial statements ) . other revenue does not include associated shipment pounds . ( 2 ) total product price per pound excludes “ other revenue ” . aerospace demand in fiscal 2015 was recovering and resupplying from a period of customer destocking within the supply chain the previous year . fiscal 2015 proved to be a record year in volume for the company in aerospace shipments at that time . aerospace demand moderated slightly in fiscal 2016 due to delays in the transition to new engine platforms combined with some softness in demand driven by lower oil and fuel costs . as these issues normalized , pounds shipped increased slightly in fiscal 2017 , although at a lower average selling price , resulting in a decline in aerospace revenues in fiscal 2017. underpinning demand for new engines is a desire for more fuel-efficiency and lower emissions , which had been tempered with previous decreases in fuel prices . the slight pull-back was temporary , and in fiscal 2018 aerospace volume hit record levels and revenue increased 17.9 % . growth continued in fiscal 2019 , with continued traction of the new generation engine platforms in spite of the grounding of the boeing 737max aircraft . fiscal 2019 sales into the aerospace market represented a record year in both volume , increasing 4.4 % , and revenue , increasing 13.8 % , in each case as compared to last fiscal year . one of the company 's core focus initiatives was to increase prices , which contributed to the revenue increase . sales into the aerospace market represented 52.7 % of the company 's overall revenue in fiscal 2019. management anticipates that the maintenance , repair and overhaul business will continue at a steady-to-increasing pace due to required maintenance schedules for the rising number of engines in service year‑over‑year . chemical processing industry revenue declined in fiscal 2015 , then took a sizable step down in fiscal 2016 and decreased again in fiscal 2017. sales into this market in fiscal 2015 and the second half of fiscal 2016 included some high- 36 value special application projects with high average selling prices per pound , but overall base-volumes in this market were low in both fiscal 2015 and 2016 compared to prior years . fiscal 2017 volume shipments increased , but at a lower average price per pound , resulting in lower chemical processing revenue in fiscal 2017 compared to fiscal 2016. chemical processing revenue in fiscal 2018 increased 12.3 % due to recovery in the base business , as well as a moderate increase in specialty application projects . this growth continued in fiscal 2019 with net revenues into the chemical processing market increasing 13.2 % , which represents 18.3 % of total net revenues . the main driver of demand in this market is capital spending in the chemical processing sector driven by end‑user demand for housing , automotive , energy and agricultural products . the chemical processing market is sensitive to oil prices , currency fluctuations and fiscal policies as well as world economic conditions and gdp growth . additional drivers of demand in this market were the increase in north american production of natural gas liquids and the further downstream processing of chemicals that may utilize equipment that requires high‑performance alloys . increased sales to the chemical processing industry in fiscal 2018 and 2019 were related to improvement in global spending in the chemical processing sector combined with the company 's focus initiatives aimed at improving volumes . sales to the industrial gas turbine market declined each year from fiscal 2016 to 2018 and fiscal 2018 volumes represented less than half the volume of fiscal 2012 peak levels . reported significant overcapacity in large-frame turbines primarily used for electrical generation combined with growth in renewable energy facilities has taken a toll on demand for large frame gas turbines . two of the large oem producers of large-frame turbines have reported weak demand and announced restructuring plans in their power generation businesses . story_separator_special_tag sales into the aerospace market had an average selling price per pound of $ 25.11 , which is higher by 8.9 % over last fiscal year . also impacting the average price per pound in fiscal 2019 were product mix and raw material pricing . in addition , volumes and revenue of specialty application projects were higher in fiscal 2019 compared to last fiscal year and were comprised of small/medium size projects as opposed to the individual large projects as has been the case in some historical fiscal years . the average market price of nickel as reported by the london metals exchange for the last three years was $ 4.70 per pound in fiscal 2017 , $ 5.95 in fiscal 2018 , and $ 6.08 in fiscal 2019. the london metals exchange price for the 30-days ending september 30 , 2019 was $ 8.02 per pound . the company values inventory utilizing the first-in , first-out ( “ fifo ” ) inventory costing methodology . in a period of decreasing raw material costs , the fifo inventory valuation normally results in higher costs of sales as compared to the last-in , first out method . conversely , in a period of rising prices , the fifo inventory valuation normally results in lower costs of sales as compared to the last-in , first out method . 38 gross profit margin trend performance the following tables show net revenue , gross profit margin and gross profit margin percentage for fiscal 2018 and fiscal 2019. replace_table_token_9_th replace_table_token_10_th gross margins ended fiscal year 2019 at $ 21.3 million , or 16.4 % of net sales , which is the highest in three years . this margin improvement is in spite of two headwinds compressing margins in terms of the fall in the market price of cobalt and the shipment of the last of the higher cost product produced during the cold-finishing outage and upgrade . both of these headwinds are expected to be alleviated moving into fiscal 2020. as described above , several focus initiatives are underway to improve margins including improving volumes and pricing , mix management and cost reductions . the fourth quarter volume was 5.4 million pounds , the company 's highest quarterly volume in four and a half years , which drove favorable fixed cost absorption contributing to improved margins . price increases notably in the aerospace market and a significant emphasis on costs reductions also contributed to margin enhancement . note that the company implemented asu 2017-07 , compensation – retirement benefits ( topic 715 ) on october 1 , 2018 on a retrospective basis . this guidance requires non-service costs components of retirement expense to be reclassified outside of operating income to a new category titled “ nonoperating retirement benefit expense ” in the statement of operations . gross margins were favorably impacted by the reclassification of the non-service cost components of retirement expense . all prior periods have been adjusted for this change in accounting . controllable working capital controllable working capital , which includes accounts receivable , inventory , accounts payable and accrued expenses , was $ 282.5 million at september 30 , 2019 , a decrease of $ 9.4 million or 3.2 % from $ 291.9 million at september 30 , 2018. this decrease resulted primarily from inventory decreasing $ 14.2 million , partially offset by an increase of accounts receivable of $ 3.5 million and decreases of accounts payable and accrued expenses of $ 1.3 million in the aggregate . as compared to the third quarter ended june 30 , 2019 , controllable working capital decreased $ 4.5 million , or 1.6 % . this decrease resulted primarily from inventory decreasing $ 10.3 million and accounts receivable decreasing $ 0.8 million , partially offset by decreases in accounts payable and accrued expenses of $ 6.5 million in the aggregate . dividends declared on november 14 , 2019 , the company announced that the board of directors declared a regular quarterly cash dividend of $ 0.22 per outstanding share of the company 's common stock . the dividend is payable december 16 , 2019 to stockholders of record at the close of business on december 2 , 2019. the aggregate cash payout based on current shares outstanding will be approximately $ 2.8 million , or approximately $ 11.0 million on an annualized basis . 39 backlog set forth below is information relating to the company 's backlog and the 30‑day average nickel price per pound as reported by the london metals exchange . this information should be read in conjunction with the consolidated financial statements and related notes thereto and the remainder of “ management 's discussion and analysis of financial condition and results of operations ” included in this annual report on form 10‑k . replace_table_token_11_th ( 1 ) represents the average price for a cash buyer as reported by the london metals exchange for the 30 days ending on the last day of the period presented . backlog was $ 235.2 million at september 30 , 2019 , a decrease of approximately $ 19.7 million , or 7.7 % , from $ 254.9 million at june 30 , 2019. the backlog dollars decreased during the fourth quarter of fiscal 2019 due to an 11.1 % decrease in backlog pounds partially offset by a 3.8 % increase in backlog average selling price . the increase in average selling price was due to a higher-value product mix and higher selling prices in the backlog . the backlog increased by $ 19.2 million , or 8.9 % , from $ 216.0 million at september 30 , 2018 to $ 235.2 million at september 30 , 2019 due to an 11.1 % increase in backlog pounds partially offset by a 2.0 % decrease in backlog average selling price . the increase in backlog pounds was primarily driven by increases in demand in the aerospace and industrial gas turbines markets . revenues by geographic area net revenues in fiscal 2017 , 2018 and 2019 were generated primarily by the company 's u.s. operations .
| results of operations year ended september 30 , 2019 compared to year ended september 30 , 2018 ( $ in thousands , except per share figures ) replace_table_token_13_th 42 the following table includes a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown . by market replace_table_token_14_th net revenues . net revenues were $ 490.2 million in fiscal 2019 , an increase of 12.6 % from $ 435.3 million in fiscal 2018 , due to an increase in average selling price per pound combined with an increase in volume . the average product selling price was $ 23.21 per pound in fiscal 2019 , an increase of 3.7 % , or $ 0.83 , from $ 22.38 per pound in fiscal 2018. volume was 20.0 million pounds in fiscal 2019 , an increase of 8.9 % from 18.4 million pounds in fiscal 2018 , with increases in each of the major markets . the average product selling price per pound increased as a result of price increases as well as other pricing considerations ( such as customer mix , timing of customer agreement adjustors , etc . ) and higher value product mix , which increased average selling price per pound by approximately $ 1.24 and $ 0.06 , respectively , partially offset by lower raw material market prices , which decreased the average selling price per pound by approximately $ 0.47. sales to the aerospace market were $ 258.1 million in fiscal 2019 , an increase of 13.8 % from $ 226.9 million in fiscal 2018 , due to an 8.9 % increase in the average selling price per pound , or $ 2.06 , combined with a 4.4 % increase in volume . demand in the aerospace market remains solid with volume in fiscal 2019 at record levels . however , uncertainty exists related to the boeing 737max production schedule and the timing of lifting of the global grounding .
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the following is a discussion of the primary credit quality indicators most closely monitored for the respective portfolio segment classes : commercial and industrial : in assessing risk associated with commercial loans , management story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ item 6. selected financial data ” and the company 's audited consolidated financial statements and the accompanying notes included in `` item 8 : financial statements and supplementary data . '' this discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate . certain risks , uncertainties and other factors , including those set forth under “ forward-looking statements , ” “ risk factors ” and elsewhere in this annual report on form 10-k , may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis . we assume no obligation to update any of these forward-looking statements . forward-looking statements this annual report on form 10-k contains forward-looking statements . these forward-looking statements reflect our current views with respect to , among other things , future events and our financial performance . these statements are often , but not always , made through the use of words or phrases such as “ may , ” “ should , ” “ could , ” “ predict , ” “ potential , ” “ believe , ” “ will likely result , ” “ expect , ” “ continue , ” “ will , ” “ anticipate , ” “ seek , ” “ estimate , ” “ intend , ” “ plan , ” “ projection , ” “ would ” and “ outlook , ” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature . these forward-looking statements are not historical facts , and are based on current expectations , estimates and projections about our industry , management 's beliefs and certain assumptions made by management , many of which , by their nature , are inherently uncertain and beyond our control . accordingly , we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks , assumptions and uncertainties that are difficult to predict . although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made , actual results may prove to be materially different from the results expressed or implied by the forward-looking statements . there are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements , including , but not limited to , the following : our ability to prudently manage our growth and execute our strategy ; risks associated with our acquisition and de novo branching strategy ; business and economic conditions generally and in the financial services industry , nationally and within our primary markets ; deterioration of our asset quality ; changes in the value of collateral securing our loans ; changes in management personnel ; liquidity risks associated with our business ; interest rate risk associated with our business ; our ability to maintain important deposit customer relationships and our reputation ; operational risks associated with our business ; volatility and direction of market interest rates ; increased competition in the financial services industry , particularly from regional and national institutions ; changes in the laws , rules , regulations , interpretations or policies relating to financial institution , accounting , tax , trade , monetary and fiscal matters ; further government intervention in the u.s. financial system ; natural disasters and adverse weather , acts of terrorism , an outbreak of hostilities or public health outbreaks ( such as coronavirus ) or other international or domestic calamities , and other matters beyond our control ; and other factors that are discussed in `` item 1a . risk factors . '' 45 the foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this annual report on form 10-k. if one or more events related to these or other risks or uncertainties materialize , or if our underlying assumptions prove to be incorrect , actual results may differ materially from what we anticipate . accordingly , you should not place undue reliance on any such forward-looking statements . any forward-looking statement speaks only as of the date on which it is made , and we do not undertake any obligation to publicly update or review any forward-looking statement , whether as a result of new information , future developments or otherwise . new factors emerge from time to time , and it is not possible for us to predict which will arise . in addition , we can not assess the impact of each factor on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . story_separator_special_tag authoritative accounting guidance based on probable and incurred losses on specific classified loans . the allowance for loan losses is increased by charges to income and decreased by charge-offs ( net of recoveries ) . the credit quality of loans in our commercial real estate related loan portfolio is impacted by delinquency status and debt service coverage generated by the borrowers ' business and fluctuations in the value of real estate collateral . management considers delinquency status to be the most meaningful indicator of the credit quality of one-to-four single family residential , home equity loans and lines of credit and other consumer loans . in general , loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time , a process we refers to as “ seasoning. story_separator_special_tag performance summary for the years ended december 31 , 2019 and 2018 net earnings were $ 26.3 million for the year ended december 31 , 2019 , as compared to $ 20.6 million for the year ended december 31 , 2018. this performance resulted in basic earnings per share of $ 2.26 for the year ended december 31 , 2019 as compared to $ 1.78 for the year ended december 31 , 2018. the increase in net earnings over this period was primarily the result of a full year of earnings from the acquisition of westbound bank on june 1 , 2018 , the continued maturity of the de novo locations in both the central texas and dallas/fort worth msa markets and a 19 basis point increase in our fully tax equivalent net interest margin from 3.50 % in 2018 to 3.69 % in 2019. the increase in earnings per share over this period was due to the 27.6 % increase in net earnings compared to a 6.6 % increase in the weighted average shares outstanding , and was impacted by the repurchase of 352,036 shares of common stock during the year ended december 31 , 2019 . 48 our r eturn on average assets was 1.13 % for the year ended december 31 , 2019 , as compared to 0.97 % for the year ended december 31 , 2018 . our r eturn on average equity was 10.37 % for the year ended december 31 , 2019 , as compared to 9.03 % for the year ended december 31 , 2018 . the increase in our return on average assets was primarily due to an increase in net earnings of 27 .6 % , relati ve to a smaller increase of 9.0 % for total average assets . the increase in the return on average equity was primarily due to an increase in net earnings of 27.6 % , relative to a smaller increase in aver age shareholder 's equity of 11.2 % . our fully tax equivalent net interest margin was 3.69 % for the year ended december 31 , 2019 and 3.50 % for the year ended december 31 , 2018. our net interest margin increased as a result of improvements in loan yields by an average of 33 basis points during the year , compared to smaller increases in the interest rates paid on deposit accounts , which increased by an average of 20 basis points . our efficiency ratio was 65.23 % for the year ended december 31 , 2019 , as compared to 67.37 % for the year ended december 31 , 2018. the improvement in our efficiency ratio for 2019 is largely attributable to the increase in our interest margin during the period . non-interest expense increased by 10.1 % , while applicable elements of non-interest income increased by 10.8 % , during 2019. our total assets increased $ 52.0 million , or 2.3 % , to $ 2.32 billion as of december 31 , 2019 , compared to $ 2.27 billion as of december 31 , 2018. total loans increased $ 45.4 million , or 2.8 % , to $ 1.69 billion as of december 31 , 2019 , compared to $ 1.65 billion as of december 31 , 2018. the increase in our total assets and total loans is primarily the result of organic loan growth in 2019. total shareholders ' equity increased $ 17.0 million , or 6.9 % , to $ 261.6 million as of december 31 , 2019 , compared to $ 244.6 million as of december 31 , 2018. the increase in shareholders ' equity was due primarily to the 27.6 % increase in net earnings in 2019 , an increase in total other comprehensive income of $ 9.9 million , or 389.1 % , and partially offset by the repurchase of common stock and payment of dividends during 2019. results of operations for the years ended december 31 , 2019 and 2018 a discussion regarding our results of operations for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 can be found under “ item 7. management 's discussion and analysis of financial condition and result of operations ” in our annual report on form 10-k for the year ended december 31 , 2018 , filed with the sec on march 15 , 2019 , which is available on the sec 's website at www.sec.gov and our investor relations website at investors.gnty.com . net interest income our operating results depend primarily on our net interest income . fluctuations in market interest rates impact the yield and rates paid on interest-earning assets and interest-bearing liabilities , respectively . changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact our net interest income . to evaluate net interest income , we measure and monitor ( 1 ) yields on our loans and other interest-earning assets , ( 2 ) the costs of our deposits and other funding sources , ( 3 ) our net interest spread and ( 4 ) our net interest margin . because noninterest-bearing sources of funds , such as noninterest-bearing deposits and shareholders ' equity also fund interest-earning assets , net interest margin includes the benefit of these noninterest-bearing sources . net interest income , before the provision for loan losses , was $ 78.9 million compared to $ 68.9 million for the years ended december 31 , 2019 and 2018 , respectively , an increase of $ 10.0 million , or 14.4 % . the increase in net interest income was comprised of a $ 14.1 million , or 15.9 % , increase in interest income offset by a $ 4.1 million , or 21.2 % , increase in interest expense .
| general the following discussion and analysis presents our financial condition and results of operations on a consolidated basis . however , because we conduct all of our material business operations through guaranty bank & trust , the discussion and analysis relates to activities primarily conducted by guaranty bank & trust . as a bank holding company that operates through one segment , we generate most of our revenue from interest on loans and investments , customer service and loan fees , fees related to the sale of mortgage loans , and trust and wealth management services . we incur interest expense on deposits and other borrowed funds , as well as noninterest expense , such as salaries and employee benefits and occupancy expenses . we analyze our ability to maximize income generated from interest earning assets and control the interest expenses of our liabilities , measured as net interest income , through our net interest margin and net interest spread . net interest income is the difference between interest income on interest-earning assets , such as loans and securities , and interest expense on interest-bearing liabilities , such as deposits and borrowings , which are used to fund those assets . net interest margin is a ratio calculated as net interest income divided by average interest-earning assets . net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities . changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities , as well as in the volume and types of interest-earning assets , interest-bearing and noninterest-bearing liabilities and shareholders ' equity , are usually the largest drivers of periodic changes in net interest spread , net interest margin and net interest income .
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because these forward-looking statements involve risks and uncertainties , the company 's plans , actions and actual results could differ materially . such statements should be evaluated in the context of the risks and uncertainties inherent in the company 's business including , but not necessarily limited to , the company 's continued dependence on certain significant customers ; the continued market acceptance of products and services offered by the company and its customers ; pricing pressures from the company 's customers , suppliers and the market ; the activities of competitors , some of which may have greater financial or other resources than the company ; the variability of our operating results ; the results of long-lived assets and goodwill impairment testing ; the variability of our customers ' requirements ; the availability and cost of necessary components and materials ; the ability of the company and our customers to keep current with technological changes within our industries ; regulatory compliance , including conflict minerals ; the continued availability and sufficiency of our credit arrangements ; changes in u.s. , mexican , chinese , vietnamese or taiwanese regulations affecting the company 's business ; the turmoil in the global economy and financial markets ; the stability of the u.s. , mexican , chinese , vietnamese and taiwanese economic , labor and political systems and conditions ; currency exchange fluctuations ; and the ability of the company to manage its growth . these and other factors which may affect the company 's future business and results of operations are identified throughout the company 's annual report on form 10-k , and as risk factors , may be detailed from time to time in the company 's filings with the securities and exchange commission . these statements speak as of the date of such filings , and the company undertakes no obligation to update such statements in light of future events or otherwise unless otherwise required by law . overview the company operates in one business segment as an independent provider of ems , which includes printed circuit board assemblies and completely assembled ( box-build ) electronic products . in connection with the production of assembled products , the company also provides services to its customers , including ( 1 ) automatic and manual assembly and testing of products ; ( 2 ) material sourcing and procurement ; ( 3 ) m anufacturing and test engineering support ; ( 4 ) design services ; ( 5 ) warehousing and distribution services ; and ( 6 ) assistance in obtaining product approval from governmental and other regulatory bodies . the company provides these manufacturing services through an international network of faciliti es located in the united states , mexico , china , vietnam and taiwan . 21 the company relies on numerous third-party suppliers for components used in the company 's production process . certain of these components are available only from single-sources or a limited number of suppliers . in addition , a customer 's specifications may require the company to obtain components from a single-source or a small number of suppliers . in the past twelve months the component marketplace has experienced shortages of various components , which in some cases has delayed delivery of product to customers . the loss of any such suppliers could have a material impact on the company 's results of operations . further , the company could operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers . the company does not enter into long-term purchase agreements with major or single-source suppliers . the company believes that short-term purchase orders with its suppliers provides flexibility , given that the company 's orders are based on the changing needs of its customers . sales can be a misleading indicator of the company 's financial performance . sales levels can vary considerably among customers and products depending on the type of services ( turnkey versus consignment ) rendered by the company and the demand by customers . consignment orders require the company to perform manufacturing services on components and other materials supplied by a customer , and the company charges only for its labor , overhead and manufacturing costs , plus a profit . in the case of turnkey orders , the company provides , in addition to manufacturing services , the components and other materials used in assembly . turnkey contracts , in general , have a higher dollar volume of sales for each given assembly , owing to inclusion of the cost of components and other materials in net sales and cost of goods sold . variations in the number of turnkey orders compared to consignment orders can lead to significant fluctuations in the company 's revenue and gross margin levels . consignment orders accounted for less than 1 % of the company 's revenues for each of the fiscal years ended april 30 , 2018 and 2017 . the company 's international footprint provides our customers with flexibility within the company to manufacture in china , mexico , vietnam or the u.s. we believe this strategy will continue to serve the company well as its customers continuously evaluate their supply chain strategies . for fiscal year 2019 the company currently expects a significant amount of revenue growth . several new customers that were added during fiscal year 2018 are starting to ramp up during the first quarter of fiscal 2019 and that ramp is expected to continue through the fiscal year . current customers are also continuing to forecast higher volumes and have awarded the company new programs which should contribute to the company 's projected growth . the percentage of overall business in the appliance market continues to d ecline as non-appliance business grows . the company values its relationships in the appliance marketplace , but the business is not as attractive as in industrial and medical markets . the company expects that trend to continue . story_separator_special_tag however , if the company concludes otherwise , then it is required to perform a quantitative impairment test , including computing the fair value of the reporting unit and comparing that value to its carrying value ( the “ step 2 ” requirement ) . if the fair value is less than its carrying value , a second step of the test is required to determine if recorded goodwill is impaired . the company also has the option to bypass the qualitative assessment for goodwill in any period and proceed directly to performing the quantitative impairment test . the company will be able to resume performing the qualitative assessment in any subsequent period . for fiscal 2017 , t he company performed its annual goodwill impairment test as of february 1 , 2017 and determined no impairment existed as of that date . the step one analysis was performed using a combination of a market approach and an income approach based on a discounted cash flow analysis . for fiscal year 2018 , the company early adopted the guidance contained in accounting standards update ( asu ) no . 2017-04 , “ intangibles-goodwill and other ( topic 350 ) : simplifying the test for goodwill impairment , ” which removes the step 2 requirement to perform a hypothetical purchase price allocation to measure goodwill impairment . beginning with its february 1 , 2018 goodwill impairment testing , goodwill impairment is the amount by which the company 's single reporting unit carrying value exceeds its fair value , not to exceed the recorded amount of goodwill . to estimate the fair value of the company 's equity , the company used both a market approach based on the guideline companies ' method , and an income approach 23 based on a discounted cash flow analysis . the value indicated by both methods was weighted to arrive at a concluded value . the carrying value of the company 's equity was greater than the fair value of the company based on the valuation analysis by an amount greater than the recorded amount of the goodwill . i n the fourth quarter of fiscal 2018 , the company 's forecasted future cash flow declined from prior estimates . the company is experiencing declining margins due to pricing pressures from vendors and customers . also at this time , electronic component manufacturers began allocating components to their customers which required the company to increase its investment in working capital . the decline in the forecasted cash flow resulted in a lower estimate of the fair value of the company 's reporting unit causing the company to take an impairment charge on all of its goodwill . the company has begun taking steps to improve its margins and has negotiated an increase in its revolving credit facility to address its working capital needs . accordingly , the company recognized a full goodwill impairment charge of $ 3,222,899 . intangible assets - intangible assets are comprised of finite life intangible assets including patents , trade names , backlog , non-compete agreements , and customer relationships . finite life intangible assets are amortized on a straight line basis over their estimated useful lives of 5 years for patents , 20 years for trade names , 1 year for backlog and 7 years for non-compete agreements except for customer relationships which are amortized on an accelerated basis over their estimated useful life of 15 years . impairment of long-lived assets - the company reviews long-lived assets , including amortizable intangible assets , for impairment . property , machinery and equipment and finite life intangible assets are reviewed whenever events or changes in circumstances occur that indicate possible impairment . if events or changes in circumstances occur that indicate possible impairment , the company first performs an impairment review based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of its assets and liabilities . this analysis requires management judgment with respect to changes in technology , the continued success of product lines , and future volume , revenue and expense growth rates . if the carrying value exceeds the undiscounted cash flows , the company records an impairment , if any , for the difference between the estimated fair value of the asset group and its carrying value . the company further conducts annual reviews for idle and underutilized equipment , and reviews business plans for possible impairment . as a result of the analysis performed in the fourth quarter of fiscal 2018 , the company determined that the carrying value of the trade name intangible asset was not recoverable and recorded a fourth quarter charge of $ 690,107 for the entire carrying amount . the company 's analysis did not indicate that any of its other long-lived assets were impaired . income tax - the company 's income tax expense , deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management 's best assessment of estimated future taxes to be paid . the company is subject to income taxes in both the u.s. and several foreign jurisdictions . significant judgments and estimates by management are required in determining the consolidated income tax expense assessment . deferred income tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities , and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse . in evaluating the company 's ability to recover its deferred tax assets within the jurisdiction from which they arise , the company considers all available positive and negative evidence , including scheduled reversals of deferred tax liabilities , projected future taxable income , tax planning strategies and recent financial operations .
| financing summary . notes payable - banks prior to march 31 , 2017 the company had a senior secured credit facility with wells fargo , n.a . with a revolving credit limit up to $ 30,000,000. the credit facility was collateralized by substantially all of the company 's domestically located assets and the company had pledged 65 % of its equity ownership interest in some of its foreign entities . prior to its payoff and termination , the wells fargo , n.a . senior secured credit facility was due t o expire on october 31 , 2018. on march 31 , 2017 , the company paid the balance outstanding under the senior revolving credit facility in the amount of $ 22,232,914 . the remaining d eferred financing cost s of $ 68,475 were expensed in the fourth quarter of fiscal 2017 . on march 31 , 2017 , the company entered into a $ 35,000,000 senior secured credit facility with u.s. bank , which expires on march 31 , 2022. the credit facility is collateralized by substantially all of the company 's domestically located assets . the facility allows the company to choose among interest rates at which it may borrow funds : the bank fixed rate of four percent or libor plus one and one half percent ( effectively 3 . 83 % at april 30 , 201 8 ) . interest is due monthly . under the senior secured credit facility , the company may borrow up to the lesser of ( i ) $ 35,000,000 or ( ii ) an amount equal to a percentage of the eligible receivable borrowing base plus a percentage of the eligible inventory borrowing base ( the “ borrowing base ” ) .
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in addition , as of december 31 , 2017 , we owned 44 interests in 13 unconsolidated real estate ventures ( collectively , the “ real estate ventures ” ) , seven of which own properties that contain approximately 6.7 million net rentable square feet of office space ; three of which own , in aggregate , 5.7 acres of land held for development ; and two that own residential towers that contain 345 and 321 apartment units , respectively . s ubsequent to december 31 , 2017 , we completed transactions that reduced our interests in real estate ventures and , as of the date of this form 10-k , we own interests in ten real estate ventures . see note 20 , “ subsequent events , ” to our consolidated financial statements for further information . in addition to our core properties , as of december 31 , 2017 , we owned land held for development , comprised of 212 acres of undeveloped land , of which 13.1 acres were held for sale , and held options to purchase approximately 60 additional acres of undeveloped land . as of december 31 , 2017 , the total potential development that these land parcels could support , including the parcels under option , under current zoning and entitlements , amounted to an estimated 14.8 million square feet , of which 0.1 million square feet relates to 13.1 acres held for sale . the properties and the properties owned by the real estate ventures are located in or near philadelphia , pennsylvania ; metropolitan washington , d.c. ; southern new jersey ; richmond , virginia ; wilmington , delaware and austin , texas . in addition to managing properties that we own , as of december 31 , 2017 , we were managing approximately 8.8 million net rentable square feet of office and industrial properties for third parties and real estate ventures . unless otherwise indicated , all references in this form 10-k to “ square feet ” represent the rentable area . we do not have any foreign operations and our business is not seasonal . our operations are not dependent on a single tenant or a few tenants and no single tenant accounted for more than 10 % of our total 2017 revenue . during the year ended december 31 , 2017 , we were managing our portfolio within five segments : ( 1 ) philadelphia central business district ( “ philadelphia cbd ” ) , ( 2 ) pennsylvania suburbs , ( 3 ) metropolitan washington , d.c. , ( 4 ) austin , texas and ( 5 ) other . the philadelphia cbd segment includes properties located in the city of philadelphia , pennsylvania . the pennsylvania suburbs segment includes properties in chester , delaware , and montgomery counties in the philadelphia suburbs . the metropolitan washington , d.c. segment includes properties in the district of columbia , northern virginia and southern maryland . the austin , texas segment includes properties in the city of austin , texas . the other segment includes properties located in camden county in new jersey and properties in new castle county in delaware . on february 2 , 2017 , we sold our last two remaining properties located in california , which were previously included in the other segment . see note 3 , “ real estate investments , ” for further information . in addition to the five segments , t he corporate group is responsible for cash and investment management , development of certain real estate properties during the construction period , and certain other general support functions . we generate cash and revenue from leases of space at our properties and , to a lesser extent , from the management of properties owned by third parties and from investments in the real estate ventures . factors that we evaluate when leasing space include rental rates , costs of tenant improvements , tenant creditworthiness , current and expected operating costs , the length of the lease term , vacancy levels and demand for office and industrial space . we also generate cash through sales of assets , including assets that we do not view as part of our core properties , either because of location or expected growth potential , and assets that are commanding premium prices from third party investors . the following highlights our financial results for the year the ended december 31 , 2017 : net income available to common shareholders increased by $ 82.4 million to $ 115.3 million for the year ended december 31 , 2017 , as compared to a $ 32.9 million of income for the corresponding period in 2016. funds from operations available to common share and unit holders ( “ ffo ” ) , a non-gaap financial measure , increased to $ 229.2 million or $ 1.29 per diluted share for the year ended december 31 , 2017 , from $ 167.0 million or $ 0.94 per diluted share for the year ended december 31 , 2016 ( see additional disclosure in the “ funds from operations ( ffo ) ” section below ) . same store net operating income , a non-gaap financial measure , increased 1.1 % for the year ended december 31 , 2017 , as compared to the corresponding period in 2016 ( see additional disclosure on same store net operating income in “ results of operations ” section below ) . core occupancy decreased from 93.9 % at december 31 , 2016 , to 92.9 % at december 31 , 2017. through our $ 317.3 million of sales efforts , we were able to repay our $ 300.0 million 2017 guaranteed notes and redeemed our entire 4,000,000 series e preferred shares for $ 100.0 million . story_separator_special_tag in addition , we may be unable to lease committed development or redevelopment properties at underwritten rental rates or within projected timeframes or complete development or redevelopment properties on schedule or within budgeted amounts , which could adversely affect our financial condition , results of operations and cash flow . 46 financial and operating performance our financial and operating performance is dependent upon the demand for office , residential and retail space in our markets , our leasing results , our acquisition , disposition and development activity , our financing activity , our cash requirements and economic and market conditions , including prevailing interest rates . adverse changes in economic conditions could result in a reduction of the availability of financing and potentially in higher borrowing costs . vacancy rates may increase , and rental rates may decline , during 2018 and possibly beyond as the current economic climate may negatively impact tenants . overall economic conditions , including but not limited to higher unemployment and deteriorating financial and credit markets , could have a dampening effect on the fundamentals of our business , including increases in past due accounts , tenant defaults , lower occupancy and reduced effective rents . these adverse conditions would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition . we believe that the quality of our assets and our strong balance sheet will enable us to raise debt capital , if necessary , in various forms and from different sources , including a traditional term or secured loans from banks , pension funds and life insurance companies . however , there can be no assurance that we will be able to borrow funds on terms that are economically attractive or at all . the table below summarizes selected operating and leasing statistics of our wholly owned operating properties for the year ended december 31 , 2017 : replace_table_token_14_th ( 1 ) includes all core properties and does not include properties under development , redevelopment or held for sale or sold . ( 2 ) includes leasing related to completed developments and redevelopments , as well as sold properties . ( 3 ) rental rates include base rent plus reimbursement for operating expenses and real estate taxes . ( 4 ) calculated on a weighted average basis . in seeking to increase revenue through our operating , financing and investment activities , we also seek to minimize operating risks , including ( i ) tenant rollover risk , ( ii ) tenant credit risk and ( iii ) development risk . tenant rollover risk : we are subject to the risk that tenant leases , upon expiration , will not be renewed , that space may not be relet , or that the terms of renewal or reletting ( including the cost of renovations ) may be less favorable to us than the current lease terms . leases that accounted for approximately 4.7 % of our aggregate final annualized base rents as of december 31 , 2017 ( representing approximately 5.3 % of the net rentable square feet of the properties ) are scheduled to expire without penalty in 2018. we maintain an active dialogue with our tenants in an effort to maximize lease renewals . for our core properties , the retention rate for the year ended december 31 , 2017 is 47 74.9 % compared to a retention rate of 69.5 % for the year ended december 31 , 2016. if we are unable to renew leases or relet space under expiring leases , at anticipated rental rates , or if tenants terminate their leases early , our cash flow would be adversely impacted . tenant credit risk : in the event of a tenant default , we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment . our management regularly evaluates our accounts receivable reserve policy in light of our tenant base and general and local economic conditions . our accounts receivable allowance was $ 17.1 million or 8.4 % of total receivables ( including accrued rent receivable ) as of december 31 , 2017 compared to $ 16.1 million or 9.0 % of total receivables ( including accrued rent receivable ) as of december 31 , 2016. if poor economic conditions materialize , we may experience increases in past due accounts , defaults , lower occupancy and reduced effective rents . this condition would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition . development risk : as of december 31 , 2017 , the following development and redevelopment projects remain under construction in progress and we were proceeding on the following activity ( dollars , in thousands ) : replace_table_token_15_th ( a ) the project is pre-leased to a single tenant . total estimated costs include $ 2.1 million of land basis existing at project inception . ( b ) we entered into an agreement to construct an 83,000 square foot build-to-suit service center ( the “ subaru nstc development ” ) on land parcels owned by us for subaru . concurrently , subaru entered into an 18-year lease for the service center . the lease contains a purchase option , which allows subaru to purchase the property at the commencement of the lease , or five years subsequent to inception , at depreciated cost . ( c ) the multi-tenant building was vacated during the fourth quarter of 2016. current plans are to renovate and amenitize the building . total project costs include $ 4.5 million of existing property basis . ( d ) total project costs include $ 37.8 million of building basis , representing the acquisition cost . ( e ) total estimated costs for drexel square are preliminary . costs will be recovered through future development projects at schuylkill yards . ( f ) the property was vacated during the third quarter of 2017. current plans are to renovate this building .
| results of operations comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 the table below shows selected operating information for the “ same store property portfolio ” and the “ total portfolio. ” the same store property portfolio consists of 94 properties containing an aggregate of approximately 14.5 million net rentable square feet , and represents properties that we owned for the twelve-month periods ended december 31 , 2016 and 2015. the same store property portfolio includes properties acquired or placed in service on or prior to january 1 , 2015 and owned through december 31 , 2016. the total portfolio includes the effects of other properties that were either placed into service , acquired or redeveloped after january 1 , 2015 or disposed prior to december 31 , 2016. a property is excluded from our same store property portfolio and moved into development/redevelopment in the period that we determine to proceed with development/redevelopment or re-entitlement for a future development strategy . this table also includes a reconciliation from the same store property portfolio to the total portfolio net income ( i.e. , all properties owned by us during the twelve-month periods ended december 31 , 2016 and 2015 ) by providing information for the properties that were acquired , placed into service , under development or redevelopment and administrative/elimination information for the twelve-month periods ended december 31 , 2016 and 2015. during the year ended december 31 , 2016 , the same store property portfolio was reduced by 13 properties , containing 1,116,223 rentable square feet , due to sales . the office property , containing 183,618 rentable square feet , at 3141 fairview park drive in falls church , virginia was removed from the same store property portfolio , as it was deconsolidated to the brandywine ai venture . the office property , containing 93,082 rentable square feet , at 500 north gulph road in king of prussia , pennsylvania was removed from the same store property portfolio and placed into redevelopment .
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as of september 30 , 2017 , the warrants are outstanding and their fair value was determined to be $ 306 thousand . the fair story_separator_special_tag forward looking and cautionary statements you should read the following discussion in conjunction with the condensed consolidated financial statements and the notes to those statements included elsewhere in this annual report on form 10-k for the year ended september 30 , 2017 . this discussion contains certain statements that are forward-looking within the meaning of the private securities litigation reform act of 1995. certain statements contained in this management 's discussion and analysis are forward-looking statements that involve risks and uncertainties . in addition , any statements that refer to expectations , projections or other characterizations of future events or circumstances are forward-looking statements . the forward-looking statements are not historical facts , but rather are based on current expectations , estimates , assumptions and projections about our industry and business . our actual results could differ materially from the results contemplated by these forward-looking statements . business overview : dlh is a provider of technology-enabled business process outsourcing and program management solutions , primarily to improve and better deploy large-scale federal health and human service initiatives . dlh derives 100 % of its revenue from agencies of the federal government , providing services to several agencies including the department of veteran affairs ( `` va '' ) , department of health and human services ( `` hhs '' ) , and the department of defense ( `` dod '' ) . publicly traded with more than 1,400 employees working in over 30 locations throughout the united states , dlh was recently recognized by govwin iq as a top service provider in the health services spending category . our business offerings are now focused on three primary sources of revenue within the federal health services market space , as follows : department of defense and veteran health services , approximately 62 % of our current business base ; human services and solutions , approximately 34 % of our current business base ; and public health and life sciences , approximately 4 % of our current business base . forward looking business trends : dlh 's mission is to become the most trusted provider of technology-enabled healthcare and public health services , medical logistics , and readiness enhancement services to active duty personnel securing the freedom of our nation , veterans , and civilian populations and communities . our primary focus within the defense agency markets include military service members and veterans ' requirements for telehealth services , behavioral healthcare , medication therapy management , health it commodities , process management , clinical systems support , and healthcare delivery . our primary focus within the civilian agency markets include healthcare and social programs delivery and readiness . these include compliance monitoring on large scale programs , technology-enabled program management , consulting , and digital communications solutions ensuring that 18 education , health , and social standards are being achieved within underserved and at risk populations . we believe these business development priorities will position dlh to expand within top national priority programs and funded areas . federal budget outlook for fiscal 2018 : the president of the united states ' broad agenda calls for increased military and , in certain cases , domestic spending , with reduced spending on foreign programs . most relevant to dlh 's targeted markets , the president advocates the lifting of sequestration caps in the defense sector ; increasing infrastructure spending in the united states ; and tightening controls on immigration . president trump 's plan to end the defense sequester and rebuild our military , without increasing the national debt , faces similar hurdles as those experienced during the obama administration . democratic leaders have thus far refused to increase money for military programs unless the increases are included for other non-defense programs . barring a spending caps fix in the next few months , congress will need to start planning fiscal 2018 with the assumption that those funding limits will stay in place . a final fy 2018 budget was not passed into law prior to october 1 , 2017. consequently , a continuing resolution ( cr ) , h.r . was passed into law on september 8 , 2017 and subsequently extended through december 22 , 2017. the cr essentially continues funding at fy17 levels but will not allow for contracts for new services to be initiated . to continue operating after the cr december 22 , 2017 expiration date , congress will need to pass , and the president will need to sign , a new cr or more comprehensive budget bill . the company does not believe these measures will have a material impact on our current business base for fiscal year 2018 , however , any delays in addressing funding may delay the timing of awards for new business . department of veterans affairs ( va ) health spending trends : dlh continues to see critical need for expanded health care solutions within our sector of the federal health market , largely focused on the needs of veterans and their families . serving nearly nine million veterans each year , the va operates the nation 's largest integrated health care system , with more than 1,700 hospitals , clinics , community living centers , readjustment counseling centers , and other facilities . on july 27 , 2017 , the house of representatives approved the department of defense appropriations act for the 2018 fiscal year . the bill includes funding for the va of $ 182.3 billion , an increase of $ 5.3 billion or 3 % above the 2017 budgeted amounts . the fiscal 2018 va funding includes medical care appropriations of approximately $ 69.0 billion , which is $ 5.7 billion ( 9.0 % ) above the 2017 budgeted level . story_separator_special_tag reconciliation of gaap net income to adjusted ebitda , a non-gaap measure : replace_table_token_5_th liquidity and capital management for the twelve months ended september 30 , 2017 , the company generated operating income of $ 6.6 million and net income of approximately $ 3.3 million . cash flows from operations totaled approximately $ 6.5 million and $ 6.0 million for the years ended september 30 , 2017 and 2016 , respectively . increase in cash flow from operations was due principally to increased income from operations . we used $ 1.3 million and $ 32.7 million of cash in investing activities during fiscal 2017 and fiscal 2016 , respectively . payments in fiscal 2016 primarily relate to the acquisition of danya international . generally , we have relatively low capital expenditure requirements for our business , and expect these expenditures in the coming years to remain consistent with the levels reported in fiscal 2017 , except as discussed above under `` forward looking business trends , industry consolidation among government contractors '' . cash used in financing activities during the fiscal year ended september 30 , 2017 was $ 3.7 million while cash provided by financing activities was $ 24.6 during the fiscal year ended september 30 , 2016 . during the year ended september 30 , 2017 , we had net repayments of $ 3.75 million under our credit facility , compared to total borrowing of $ 23.4 million in fiscal 2016 2017 . the change was primarily related to proceeds we received to finance our acquisition of danya international during the fiscal year ended september 30 , 2016 . sources of cash and cash equivalents as of september 30 , 2017 , the company 's immediate sources of liquidity include cash and cash equivalents , accounts receivable , and access to its secured revolving line of credit facility with fifth third bank . this credit facility provides us with access of up to $ 10.0 million , subject to certain conditions including eligible accounts receivable . the company 's present operating liabilities are largely predictable and consist of vendor and payroll related obligations . our current investment and financing obligations are adequately covered by cash generated from profitable operations . 23 management 's assessment of cash and cash equivalents at september 30 , 2017 management believes that : ( a ) cash and cash equivalents of approximately $ 4.9 million as of september 30 , 2017 ; ( b ) the amount available under its line of credit that was in effect at september 30 , 2017 ( which is limited to the amount of eligible assets ) ; and ( c ) planned operating cash flow should be sufficient to support the company 's operations for twelve months from the date of these financial statements . loan facility a summary of our loan facilities and subordinated debt financing for the period ended september 30 , 2017 is as follows : replace_table_token_6_th * interest rate as of september 30 , 2017 was 1.24 % ( a ) represents the principal amounts payable on our term loan with fifth third bank . the $ 25.0 million term loan from fifth third bank was funded at closing and is secured by liens on substantially all of the assets of the company . the principal of the term loan is payable in fifty-nine consecutive monthly installments of $ 312,500 beginning on june 1 , 2016 with the remaining balance due on may 1 , 2021. the term loan agreement requires compliance with a number of financial covenants and contains restrictions on our ability to engage in certain transactions . among other matters , we must comply with limitations on : granting liens ; incurring other indebtedness ; maintenance of assets ; investments in other entities and extensions of credit ; mergers and consolidations ; and changes in nature of business . the loan agreement also requires us to comply with certain financial covenants including : ( i ) a minimum fixed charge coverage ratio of at least 1.35 to 1.0 commencing with the quarter ending june 30 , 2016 , and for all subsequent periods , and ( ii ) a funded indebtedness to adjusted ebitda ratio not exceeding the ratio of 3.25 to 1.0 for the period through september 30 , 2017 to 2.5 to 1.0 for the period ending september 30 , 2018 through maturity . adjusted ebitda ratio is calculated by dividing the company 's total interest-bearing debt by net income adjusted to exclude ( i ) interest and other expenses , including acquisition expenses , net , ( ii ) provision for or benefit from income taxes , if any , ( iii ) depreciation and amortization , and ( iv ) g & a expenses - equity grants . in addition to monthly payments of the outstanding indebtedness , the loan agreement also requires prepayments of a percentage of excess cash flow , as defined in the loan agreement . accordingly , a portion of our cash flow from operations will be dedicated to the repayment of our indebtedness . dlh is fully compliant with all covenants under the loan agreement with fifth third bank . ( b ) the secured revolving line of credit from fifth third bank has a ceiling of up to $ 10.0 million . borrowing on the line of credit is secured by liens on substantially all of the assets of the company . the company 's total borrowing availability , based on eligible accounts receivables at september 30 , 2017 , was $ 9.9 million . this capacity was comprised of $ 0.6 million in a stand-by letter of credit and unused borrowing capacity of $ 9.3 million . the revolving line of credit is subject to loan covenants as described above in the term loan , and dlh is fully compliant with those covenants .
| results of operations for fiscal year 2017 as compared to fiscal year 2016 the following table summarizes , for the periods indicated , consolidated statements of operations data expressed in dollars in thousands except for per share amounts , and as a percentage of revenue : replace_table_token_4_th revenues fiscal year 2017 revenue was $ 115.7 million , an increase of $ 30.1 million or 35.1 % over the prior year period . the increase is due principally to the full year impact of the acquisition completed in may 2016 , which contributed $ 24.7 million and $ 5.4 million from continued expansion on existing contract vehicles resulting from program management and customer satisfaction with our services . direct expenses direct expenses generally comprise direct labor ( including benefits ) , taxes and insurance , workers compensation expense , subcontract cost , and other direct costs . direct expenses for the year ended september 30 , 2017 were $ 89.8 million , an increase of $ 22.0 million , or 32.5 % over prior year due principally to increased professional service costs attributed to increased revenue . as a percentage of revenue , direct expenses were 77.7 % , a favorable reduction of ( 1.5 ) % with the improvement largely attributable to effective program management and cost efficiencies on existing contracts . gross margin gross margin for the year ended september 30 , 2017 was approximately $ 25.9 million , an increase of approximately $ 8.0 million or 45.0 % over prior fiscal year on higher revenue and improved performance on contracts . as a percentage of revenue , our gross margin rate of 22.3 % increase d by 150 basis points , or 1.5 % , over the prior year . favorable gross margin results are due principally to expanded contribution from more differentiated contracts , and effective assignment of staff to deliver strong contract performance . we continue to focus on internal productivity measures to control costs and improve our gross margin .
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`` goodwill is primarily the result of expected synergies from combining the celigo product line with the company 's other life science products . goodwill arising from the acquisition will be deductible for tax purposes . celigo 's operating results have been included in the company 's results of operations from the acquisition date . pro forma results are not provided as celigo 's results of operations were not material . transaction costs related to this acquisition were $ 0.1 million for the first quarter ended december 31 , 2011 , and are included in selling , general and administrative expense . there were no transaction costs subsequent to december 31 , 2011. acquisition of nexus on july 25 , 2011 , the company acquired story_separator_special_tag certain statements in this form 10-k , and in particular in “ management 's discussion and analysis of financial condition and results of operation , ” constitute forward-looking statements , which are subject to the safe harbor provisions created by the private securities litigation reform act of 1995. certain , but not all , of the forward-looking statements in this report are specifically identified as forward-looking , by use of phrases and words such as “ we believe , ” “ we anticipate , ” “ we expect , ” “ may , ” “ should , ” “ could , ” and other future-oriented terms . the identification of certain statements as “ forward-looking ” is not intended to mean that other statements not specifically identified are not forward-looking . forward-looking statements include , but are not limited to , statements that relate to our future revenue , margin , expense levels , shipments , costs , earnings , product development , demand , acceptance and market share , competitiveness , market opportunities and performance , levels of research and development ( r & d ) , the success of our marketing , sales and service efforts , outsourced activities and operating expenses , anticipated manufacturing , customer and technical requirements , the ongoing viability of the solutions that we offer and our customers ' success , tax expenses , our management 's plans and objectives for our current and future operations and business focus , the levels of customer spending , general economic conditions , the sufficiency of financial resources to support future operations , and capital expenditures . such statements are based on current expectations and are subject to risks , uncertainties , and changes in condition , significance , value and effect , including without limitation those discussed above under the heading “ risk factors ” within item 1a and elsewhere in this report and other documents we file from time to time with the securities and exchange commission ( the “ sec ” ) , such as our quarterly reports on form 10-q and our current reports on form 8-k. such risks , uncertainties and changes in condition , significance , value and effect could cause our actual results , performance or achievements to differ materially from those expressed in this report and in ways we can not readily foresee . readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date hereof and are based on information currently and reasonably known to us . we do not undertake any obligation to release the results of any revisions to these forward-looking statements , which may be made to reflect events or circumstances that occur after the date of this report or to reflect the occurrence or effect of anticipated or unanticipated events . precautionary statements made herein should be read as being applicable to all related forward-looking statements wherever they appear in this report . story_separator_special_tag that enable our customers to maximize process tool uptime and productivity . this segment also provides end-user customers with spare parts support services that maximize tool productivity . the brooks life science systems segment provides automated sample management systems for automated cold sample storage , equipment for sample preparation and handling , consumables , and parts and support services to a wide range of life science customers including pharmaceutical companies , biotechnology companies , biobanks , national laboratories , research institutes and research universities . the contract manufacturing segment provided services to build equipment front-end modules , vacuum transport modules and other subassemblies which enabled our customers to effectively source high quality and high reliability process tools for semiconductor market applications . we sold this business unit to celestica inc. on june 28 , 2011. critical accounting policies and estimates the preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to revenue , bad debts , inventories , derivative instruments , intangible assets , goodwill , income taxes , warranty obligations , pensions and stock-based compensation . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , including current and anticipated worldwide economic conditions both in general and specifically in relation to the semiconductor and life science industries , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . as discussed in the year over year comparisons below , actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue product revenue is associated with the sale of hardware systems , components and spare parts as well as product license revenue . service revenue is associated with service contracts , repairs , upgrades and field service . shipping and handling fees billed to customers , if any , are recognized as revenue . story_separator_special_tag the dcf method includes future cash flow projections , which are discounted to present value , and an estimate of terminal values , which are also discounted to present value . terminal values represent the present value an investor would pay today for the rights to the cash flows of the business for the years subsequent to the discrete cash flow projection period . we consider the dcf method to be the most appropriate valuation indicator as the dcf analyses are based 22 on management 's long-term financial projections . given the dynamic nature of the cyclical semiconductor equipment market , management 's projections as of the valuation date are considered more objective since other market metrics for peer companies fluctuate over the cycle . however , we also use market-based valuation techniques to test the reasonableness of the reporting unit fair values determined by the dcf method . in addition , we compare the aggregate fair value of our reporting units plus our net corporate assets to our overall market capitalization . for our annual goodwill impairment test as of september 30 , 2013 , we determined that the estimated fair value of each reporting unit exceeded its carrying value by at least 10 % and that no impairment existed . our tests of goodwill as of september 30 , 2012 and 2011 indicated that we did not have any impairment to goodwill . the fair values of the reporting units in the brooks product solutions and brooks global services segments exceeded their carrying values by amounts ranging from 18 % to 114 % at september 30 , 2013. the goodwill allocated to the brooks life science systems reporting unit at september 30 , 2013 was $ 47.4 million . the fair value of the brooks life science systems reporting unit exceeded its carrying value by 10 % at september 30 , 2013. the observable inputs used in our dcf for analysis for the brooks life science systems reporting unit include a discount rate of 18 % . in addition , we determined the terminal value using the gordon growth method and a terminal growth rate of 3 % . the gordon growth method assumes that the reporting unit will grow and generate free cash flow at a constant rate . we believe that the gordon growth method is the most appropriate method for determining the terminal value because the terminal value was calculated at the point in which we have assumed that the brooks life science systems reporting unit has reached a stable growth rate . in fiscal 2013 , we experienced a decline in revenue and operating profit for the products in the brooks life science systems reporting unit . the cash flow assumptions in our dcf method analysis for the brooks life science systems reporting unit project growth in our current automated sample management systems and the development of new automated sample management systems that would allow us to address a broader automated sample management market than we can address with our current products . while we believe our assumptions are reasonable , our actual results could differ from our projections . to the extent that the operating results of the brooks life science systems reporting unit do not improve as expected and new life science products being designed to expand the markets we serve are not introduced in a timely manner or accepted by the market , we may be required to write down all or a portion of the goodwill and other long-lived assets associated with this reporting unit , which would adversely impact our earnings . we are required to test long-lived assets , other than goodwill , when indicators of impairment are present . for purposes of this test , long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities . when we determine that indicators of potential impairment exist , the next step of the impairment test requires that the potentially impaired long-lived asset group is tested for recoverability . the test for recoverability compares the undiscounted future cash flows of the long-lived asset group to its carrying value . if the carrying values of the long-lived asset group exceed the future cash flows , the assets are potentially impaired . the next step in the impairment process is to determine the fair value of the individual net assets within the long-lived asset group . if the aggregate fair values of the individual net assets of the group are less than the carrying values , an impairment charge is recorded equal to the excess of the aggregate carrying value of the group over the aggregate fair value . the loss is allocated to each asset within the group based on their relative carrying values , with no asset reduced below its fair value . we determined that impairment indicators were present for long-lived assets related to the celigo product line as of september 30 , 2013. indicators of impairment for this asset group included declining sales in the trailing twelve months and negative cash flows from the asset group . we tested the recoverability of the asset group by comparing the sum of the expected future undiscounted cash flows directly attributable to the assets to their carrying values , which resulted in the conclusion that the carrying amounts of the assets were not recoverable . the fair value of the long-lived assets related to the celigo products was based primarily on market-based valuation techniques reflecting the view of a market participant using the assets in the group to their best possible use .
| overview we are a leading provider of automation , vacuum and instrumentation solutions for multiple markets and are a valued business partner to original equipment manufacturers ( “ oems ” ) and equipment users throughout the world . we serve markets where equipment productivity and availability is a critical factor for our customers ' success , typically in demanding temperature and or pressure environments . our largest served market is the semiconductor capital equipment industry , which represented approximately 53 % , 54 % and 65 % of our consolidated revenue for fiscal years 2013 , 2012 and 2011 , respectively . these decreases are the result of a cyclical downturn in the semiconductor capital equipment market , combined with our efforts to target certain non-semiconductor revenue opportunities , including acquisitions and a divestiture . the non-semiconductor markets served by us include life sciences , industrial capital equipment and other adjacent technology markets . the demand for semiconductors and semiconductor manufacturing equipment is cyclical , resulting in periodic expansions and contractions of this market . demand for our products has been impacted by these cyclical industry conditions . our revenue for fiscal year 2011 benefited from an upturn in the semiconductor capital equipment market . revenue for fiscal year 2012 was impacted by our acquisitions and divestitures and weakness in demand from semiconductor capital equipment customers . revenue for fiscal year 2013 was also impacted by weakness in demand for semiconductor capital equipment , particularly in the first half of our fiscal year . we have observed indications of improved demand from the semiconductor capital equipment market and we believe our revenue will improve in fiscal 2014 as compared to fiscal 2013. we expect the semiconductor equipment market will continue to be a key end market for our products , however , we intend to acquire and develop technologies that will create opportunities outside of the semiconductor market .
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some of the products that we purchase from these sources are proprietary or complex in nature , and , therefore , can not be readily or easily replaced by alternative sources . ( w ) new accounting pronouncements adopted effective january 1 , 2018 , we adopted the new revenue standard using the modified retrospective method for all contracts not completed as of the date of adoption . we recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings . the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods presented . as a result of the adoption of asu 2014-09 , we have changed our accounting policy for revenue recognition and the details of the significant changes and quantitative impact of the changes are set out below . up-front customer loyalty programs . our up-front loyalty programs provide customers with incentives in the form of cash or idexx points upon entering into multi-year agreements to purchase annual minimum amounts of products or services . under previous u.s. gaap , if up-front incentives were subsequently utilized to purchase instruments , we limited instrument revenue to the amount of consideration received from the customer at the time of placement that was not contingent on future purchases and consequently deferred instrument revenue and costs at the time of placement . the new revenue standard permits revenue recognition at the time of instrument placement when the consideration is committed , but contingent on the purchase of future story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10‑k . we have included certain terms and abbreviations used throughout this annual report on form 10-k in the `` glossary of terms and selected abbreviations. ” description of business segments . we operate primarily through three business segments : diagnostic and information technology-based products and services for the veterinary market , which we refer to as the companion animal group ( “ cag ” ) ; water quality products ( “ water ” ) ; and diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and food , which we refer to as livestock , poultry and dairy ( “ lpd ” ) . our other operating segment combines and presents products for the human point-of-care medical diagnostics market ( “ opti medical ” ) with our out-licensing arrangements because they do not meet the quantitative or qualitative thresholds for reportable segments . see `` part ii . item 8. financial statements and supplementary data , note 16 . segment reporting `` to the consolidated financial statements for the year ended december 31 , 2018 , included in this annual report on form 10-k for financial information about our segments , including our product and service categories , and our geographic areas . certain costs are not allocated to our operating segments and are instead reported under the caption “ unallocated amounts ” . these costs include costs that do not align with one of our existing operating segments or are cost prohibitive to allocate , which primarily consist of our r & d function , regional or country expenses , certain foreign currency revaluation gains and losses on monetary balances in currencies other than our subsidiaries ' functional currency and unusual items . corporate support function costs ( such as information technology , facilities , human resources , finance and legal ) , health benefits and incentive compensation are charged to our business segments at pre-determined budgeted amounts or rates . differences from these pre-determined budgeted amounts or rates are captured within unallocated amounts . the following is a discussion of the strategic and operating factors that we believe have the most significant effect on the performance of our business . companion animal group our strategy is to provide veterinarians with both the highest quality diagnostic information to support more advanced medical care and information management solutions that help demonstrate the value of diagnostics to pet owners and enable efficient practice management . by doing so , we are able to build a mutually successful relationship with our veterinarian customers based on healthy pets , loyal customers and expanding practice revenues . cag diagnostics . we provide diagnostic capabilities that meet veterinarians ' diverse needs through a variety of modalities including in-clinic diagnostic solutions and outside reference laboratory services . veterinarians that utilize our full line of diagnostic modalities obtain a single view of a patient 's diagnostic results , which allows them to track and evaluate trends and achieve greater medical insight . our diagnostic capabilities generate both recurring and non-recurring revenues . revenues related to capital placements of our in-clinic idexx vetlab suite of instruments and our snap pro analyzer are non-recurring in nature in that they are sold to a particular customer only once . revenues from the associated proprietary idexx vetlab consumables , snap rapid assay test kits , reference laboratory and consulting services , and extended maintenance agreements and accessories related to our idexx vetlab instruments and our snap pro analyzer are recurring in nature , in that they are regularly purchased by our customers , typically as they perform diagnostic testing as part of ongoing veterinary care services . our recurring revenues , most prominently idexx vetlab consumables and rapid assay test kits , have significantly higher gross margins than those provided by our instrument sales . therefore , the mix of recurring and non-recurring revenues in a particular period will impact our gross margins . diagnostic capital revenue . story_separator_special_tag our long-term success in the continuing growth of our cag recurring diagnostic product and services is dependent upon ; growing volumes at existing customers by increasing their utilization of existing and new test offerings , acquiring new customers , maintaining high customer loyalty and retention , our ability to realize modest annual price increases based on our differentiated products and the growing value of our diagnostic offering . we continuously seek opportunities to enhance the care that veterinary professionals give to their patients and clients through supporting the implementation of real-time care testing work flows , which is performing tests and sharing test results with the client at the time of the patient visit . our latest 35 generation of chemistry and hematology instruments demonstrates this commitment by offering enhanced ease of use , faster time to results , broader test menu and connectivity to various information technology platforms that enhance the value of the diagnostic information generated by the instruments . in addition , we provide marketing tools and customer support that help drive efficiencies in veterinary practice processes and allow practices to increase the number of clients they see on a daily basis . with all of our instrument product lines , we seek to differentiate our products from our competitors ' products based on time-to-result , ease-of-use , throughput , breadth of diagnostic menu , flexibility of menu selection , accuracy , reliability , ability to handle compromised samples , analytical capability of diagnostics software , integration with the ivls and vetconnect plus , client communications capabilities , education and training , and superior sales and customer service . our success depends , in part , on our ability to differentiate our products in a way that justifies a premium price . recurring diagnostic revenue . revenues from our proprietary idexx vetlab consumable products , our snap rapid assay test kits , outside reference laboratory and consulting services , and extended maintenance agreements and accessories related to our cag diagnostics instruments are considered recurring in nature . for the year ended december 31 , 2018 , recurring diagnostic revenue , which is both highly durable and profitable , accounted for approximately 75 % of our consolidated revenue . our in-clinic diagnostic solutions , consisting of our idexx vetlab consumable products and snap rapid assay test kits , provide real-time reference lab quality diagnostic results for a variety of companion animal diseases and health conditions . our outside reference laboratories provide veterinarians with the benefits of a more comprehensive list of diagnostic tests and access to consultations with board-certified veterinary specialists and pathologists , combined with the benefit of same-day or next-day turnaround times . we derive substantial revenues and margins from the sale of consumables that are used in idexx vetlab instruments and the multi-year consumable revenue stream is significantly more valuable than the placement of the instrument . our strategy is to increase diagnostic testing within veterinary practices by placing idexx vetlab instruments and increasing instrument utilization of consumables . utilization can increase due to a greater number of patient samples being run or to an increase in the number of tests being run per patient sample . our strategy is to increase both drivers . to increase utilization , we seek to educate veterinarians about best medical practices that emphasize the importance of chemistry , hematology , and urinalysis testing for a variety of diagnostic purposes , as well as by introducing new testing capabilities that were previously not available to veterinarians . our in-clinic diagnostic solutions also include snap rapid assay tests that address important medical needs for particular diseases prevalent in the companion animal population . we seek to differentiate these tests from those of other in-clinic test providers and reference laboratory diagnostic service providers based on critically important sensitivity and specificity , as demonstrated by peer reviewed third-party research , as well as overall superior performance and ease of use by providing our customers with combination tests that test a single sample for up to six diseases at once , including the ability to utilize our snap pro analyzer . we further augment our product development and customer service efforts with sales and marketing programs that enhance medical awareness and understanding regarding certain diseases and the importance of diagnostic testing . we believe approximately half of all diagnostic testing by u.s. veterinarians is provided by outside reference laboratories such as idexx reference laboratories . in certain markets outside the u.s. , in-clinic testing may be less prevalent , and an even greater percentage of diagnostic testing is done in reference laboratories . we attempt to differentiate our reference laboratory testing services from those of competitive reference laboratories and competitive in-clinic offerings primarily on the basis of a unique and proprietary test menu , technology employed , quality , turnaround time , customer service and tools such as vetconnect plus that demonstrate the complementary manner in which our laboratory services work with our in-clinic offerings . profitability in our lab business is supported , in part , by our expanding business scale globally . profit improvements also reflect benefits from price increases and our ability to achieve operational efficiencies . when possible , we utilize core reference laboratories to service samples from other states or countries , expanding our customer reach without an associated expansion in our reference laboratory footprint . new laboratories that we open typically will operate at a loss until testing volumes achieve sufficient scale . acquired laboratories frequently operate less profitably than our existing laboratories and acquired laboratories may not achieve the profitability of our existing laboratory network for several years until we complete the implementation of operating improvements and efficiencies . therefore , in the short term , new and acquired reference laboratories generally will have a negative effect on our operating margin . 36 recurring reference lab revenue growth is achieved both through increased testing volumes with existing customers and through the acquisition of new customers , net of customer losses .
| summary of significant accounting policies `` and `` part ii . item 8. financial statements and supplementary data , note 3. revenue recognition `` to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k for additional information regarding our volume commitment programs and the impact of the new revenue standard . additionally , the changes in cash from other assets and liabilities in 2018 , as compared to 2017 , reflects the prior year deemed repatriation tax on foreign profits from the enactment of the 2017 tax act , which was recorded in the fourth quarter of 2017 and is payable over eight years . the decrease in cash provided by deferred revenue during 2017 as compared to 2016 was primarily due to customer program mix . the increase in cash provided by other assets and liabilities during 2017 as compared to cash provided by other assets and liabilities during 2016 was primarily due to the deemed repatriation tax on foreign profits from the enactment of the 2017 tax act , which was recorded in the fourth quarter of 2017 and is payable over eight years , as well as higher relative employee incentive compensation payments . we have historically experienced proportionally lower net cash flows from operating activities during the first quarter and proportionally higher cash flows from operating activities for the remainder of the year and for the annual period driven primarily by payments related to annual employee incentive programs in the first quarter following the year for which the bonuses were earned and the seasonality of vector-borne disease testing , which has historically resulted in significant increases in accounts receivable balances during the first quarter of the year . investing activities .
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additionally , at year-end , we may pay a bonus distribution in addition to the monthly distributions to ensure story_separator_special_tag the following analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and the notes thereto contained elsewhere in this annual report on form 10-k. historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition or results of operations for any future periods . statements we make in the following discussion that express a belief , expectation or intention , as well as those that are not historical fact , are forward-looking statements that are subject to risks , uncertainties and assumptions . our actual results could differ materially from those we express in the following discussion as a result of a variety of factors , including the risks and uncertainties we have referred to under the headings forward looking statements and risk factors in part i of this report . except per share amounts , dollar amounts are in thousands unless otherwise indicated . overview general we are an externally-managed , closed-end , non-diversified management investment company that has elected to be regulated as a business development company ( bdc ) under the investment company act of 1940 , as amended ( the 1940 act ) . in addition , for united states ( u.s. ) federal income tax purposes , we have elected to be treated as a regulated investment company ( ric ) under subchapter m of the internal revenue code of 1986 , as amended ( the code ) . as a bdc and a ric , we are also subject to certain constraints , including limitations imposed by the 1940 act and the code . we were incorporated under the general corporation law of the state of delaware on february 18 , 2005. we were established for the purpose of investing in debt and equity securities of established private businesses in the u.s. debt investments primarily come in the form of three types of loans : senior term loans , senior subordinated loans and junior subordinated debt . equity investments primarily take the form of preferred or common equity ( or warrants or options to acquire the foregoing ) , often in connection with buyouts and other recapitalizations . to a much lesser extent , we also invest in senior and subordinated syndicated loans . our investment objectives are ( a ) to achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses , make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time and ( b ) to provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains . we expect that our investment mix over time will consist of approximately 80 % in debt securities and 20 % in equity securities . as of march 31 , 2014 , our investment mix was 73 % in debt securities and 27 % in equity securities , at cost . we focus on investing in small and medium-sized private u.s. businesses that meet certain criteria , including some but not all of the following : the potential for growth in cash flow , adequate assets for loan collateral , experienced management teams with a significant ownership interest in the borrower , profitable operations based on the borrower 's cash flow , reasonable capitalization of the borrower ( usually by leveraged buyout funds or venture capital funds ) and the potential to realize appreciation and gain liquidity in our equity position , if any . we anticipate that liquidity in our equity position will be achieved through a merger or acquisition of the borrower , a public offering of the borrower 's stock or by exercising our right to require the borrower to repurchase our warrants , though there can be no assurance that we will always have these rights . we lend to borrowers that need funds to finance growth , restructure their balance sheets or effect a change of control . we invest by ourselves or jointly with other funds and or management of the portfolio company , depending on the opportunity . if we are participating in an investment with one or more co-investors , our investment is likely to be smaller than if we were investing alone . our common stock and 7.125 % series a cumulative term preferred stock ( our term preferred stock ) are traded on the nasdaq global select market ( nasdaq ) under the symbols gain and gainp , respectively . we are externally managed by our investment advisor , gladstone management corporation ( our adviser ) , an sec registered investment adviser and an affiliate of ours , pursuant to an investment advisory and management agreement ( the advisory agreement ) . the adviser manages our investment activities . our board of directors , which is composed of a majority of independent directors , supervises such investment activities . we have also entered into an administration agreement ( the administration agreement ) with gladstone administration , llc ( our administrator ) , an affiliate of ours and the adviser , whereby we pay separately for administrative services . business environment the strength of the global economy , and the u.s. economy in particular , continues to be uncertain and volatile , and we remain cautious about a long-term economic recovery . the effects of the previous recession and the disruptions in the capital markets have 34 impacted our liquidity options and increased our cost of debt and equity capital . story_separator_special_tag on may 12 , 2014 , the closing market price of our common stock was $ 7.92 , which represented a 5.0 % discount to our march 31 , 2014 net asset value ( nav ) per share of $ 8.34. when our stock trades below nav , our ability to issue equity is constrained by provisions of the 1940 act , which generally prohibits the issuance and sale of our common stock at an issuance price below the then current nav per share without stockholder approval , other than through sales to our then-existing stockholders pursuant to a rights offering . 35 at our 2013 annual meeting of stockholders held on august 8 , 2013 , our stockholders approved a proposal authorizing us to issue and sell shares of our common stock at a price below our then current nav per share , subject to certain limitations , including that the number of shares issued and sold pursuant to such authority does not exceed 25 % of our then outstanding common stock immediately prior to each such sale , provided that our board of directors makes certain determinations prior to any such sale . this august 2013 stockholder authorization is in effect for one year from the date of stockholder approval . prior to the august 2013 stockholder authorization , we sought and obtained stockholder approval concerning a similar proposal at the annual meeting of stockholders held in august 2012 , and with our board of directors ' subsequent approval , we issued shares of our common stock in october and november 2012 at a price per share below the then current nav per share . the resulting proceeds , in part , have allowed us to grow the portfolio by making new investments , generate additional income through these new investments , provide us additional equity capital to help ensure continued compliance with regulatory tests and increase our debt capital while still complying with our applicable debt-to-equity ratios . at our 2014 annual meeting of stockholders , scheduled to take place in august 2014 , we expect to ask our stockholders to vote in favor of this proposal again so that it may be in effect for another year . regulatory compliance our ability to seek external debt financing , to the extent that it is available under current market conditions , is further subject to the asset coverage limitations of the 1940 act , which require us to have an asset coverage ratio ( as defined in section 18 ( h ) of the 1940 act ) , of at least 200 % on our senior securities representing indebtedness and our senior securities that are stock , which we refer to collectively as senior securities. as of march 31 , 2014 , our asset coverage ratio was 298 % . our status as a regulated investment company ( ric ) under subchapter m of the internal revenue code of 1986 , as amended ( the code ) , in addition to other requirements , also requires us , at the close of each quarter of the taxable year , to meet an asset diversification test , which requires that at least 50 % of the value of our assets consists of cash , cash items , u.s. government securities or certain other qualified securities ( the ( 50 % threshold ) . in the past , we have obtained this ratio by entering into a short-term loan at quarter end to purchase qualifying assets , though a short term loan was not necessary at the end of the quarter ended march 31 , 2014. until the composition of our assets is above the required 50 % threshold on a consistent basis by a significant margin , we may have to continue to obtain short-term loans on a quarterly basis . when deployed , this strategy , while allowing us to satisfy the 50 % threshold for our ric status , limits our ability to use increased debt capital to make new investments , due to our asset coverage ratio limitations under the 1940 act . investment highlights during the fiscal year ended march 31 , 2014 , we disbursed $ 125.6 million in new debt and equity investments and extended $ 6.6 million of investments to existing portfolio companies . from our initial public offering in june 2005 through march 31 , 2014 , we have made 217 investments in 107 companies for a total of $ 925.6 million , before giving effect to principal repayments on investments and divestitures . investment activity during the fiscal year ended march 31 , 2014 , the following significant transactions occurred : in april 2013 , we invested $ 17.7 million in jackrabbit , inc. ( jackrabbit ) through a combination of debt and equity . jackrabbit , headquartered in ripon , california , is a manufacturer of nut harvesting equipment . in may 2013 , we invested $ 8.8 million in funko , llc ( funko ) through a combination of debt and equity . funko , headquartered in lynnwood , washington , is a designer , importer and marketer of pop-culture collectibles . this was our first co-investment with one of our affiliated funds , gladstone capital corporation ( gladstone capital ) , pursuant to an exemptive order granted by the sec in july 2012. in june 2013 , we invested $ 9 million in star seed , inc. ( star seed ) through a combination of debt and equity . based in osborne , kansas , star seed provides its customers with a variety of specialty seeds and related products . in august 2013 , we invested $ 20 million in schylling , inc. ( schylling ) through a combination of debt and equity . schylling , headquartered in rowley , massachusetts , is a premier provider of high quality specialty toys . in august 2013 , venyu was sold .
| results of operations comparison of the fiscal year ended march 31 , 2014 , to the fiscal year ended march 31 , 2013 replace_table_token_7_th nm = not meaningful investment income total investment income increased by 18.8 % for the year ended march 31 , 2014 , as compared to the prior year . this increase was primarily due an overall increase in interest income in the year ended march 31 , 2014 , as a result of an increase in the size of our loan portfolio and holding higher-yielding debt investments . interest income from our investments in debt securities increased 22.8 % for the year ended march 31 , 2014 , as compared to the prior year . the level of interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the period multiplied by the weighted average yield . the weighted average principal balance of our interest-bearing investment portfolio during the year ended march 31 , 2014 , was $ 241.5 million , compared to $ 198.1 million for the prior year . this increase was primarily due to $ 125.6 million in new investments originated after march 31 , 2013 , including jackrabbit , funko , star seed , schylling , adc , behrens , meridian , head country and edge , partially offset by the exit of venyu and the repayment of debt investments of cavert and channel . as of march 31 , 2014 , our loans to tread corp. ( tread ) were on non-accrual . ash , which was on non-accrual as of september 30 , 2013 , was sold to certain members of its existing management team in october 2013. as a result of the sale , we retained a $ 5 million accruing revolving credit facility in ash , which is no longer on non-accrual .
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restricted stock units during the years ended december 31 , 2018 and 2017 , the company issued restricted stock units for services as follows ( $ in thousands , except share data ) : replace_table_token_18_th the weighted average estimated fair value of restricted stock issued for services in the years ended december 31 , 2018 and 2017 was $ 5.10 and $ 5.37 per share , respectively . the fair value of the restricted stock units was determined using the company 's closing stock price on the date of issuance . the vesting terms of restricted stock unit issuances are generally one year , or upon the achievement of performance-based milestones . note 11 – share-based compensation share-based compensation we utilize share-based compensation in the form of stock options and restricted stock . the following table summarizes the components of share-based compensation expense for the years ended december 31 , 2018 and 2017 ( $ in thousands ) : 63 index replace_table_token_19_th the approval of the 2017 hitachi transaction ( see note 3 ) by our stockholders resulted in a change in control under our equity compensation plans ( as defined in the 2009 plan and the 2015 equity plan , and , together with the 2009 plan , the “ equity compensation plans ” ) . accordingly , all outstanding unvested equity awards were accelerated upon the closing date , resulting in an acceleration of $ 1.9 million of equity compensation for the years ended december 31 , 2017. in addition , in connection with the 2017 hitachi transaction , the company agreed to extend the post-termination option exercise period for all pct employees transitioning to hitachi from 90 days to the earlier of ( i ) two years ( may 18 , 2019 ) or ( ii ) the date of the employees ' termination from pct . the post-termination option exercise period modification resulted in an additional expense of $ 0.3 million in 2017 and recorded in discontinued operations , since there were no future service requirements story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under “ cautionary note regarding forward-looking statements ” and under “ risk factors ” herein . overview caladrius biosciences , inc. ( “ we , ” “ us , ” `` our , '' “ caladrius ” or the “ company ” ) is a late-stage therapeutics development biopharmaceutical company committed to the development of innovative products that have the potential to restore the health of people with chronic illnesses . our leadership team collectively has decades of biopharmaceutical development experience and world-recognized scientific achievement in the fields of cardiovascular medicine and cell therapy , among other areas . our goal is to build a broad portfolio of novel and versatile products that address important unmet medical needs . our current product candidates include three developmental treatments for cardiovascular diseases based on our cd34+ cell therapy platform : clbs12 , in phase 2 and eligible for early conditional approval in japan for the treatment of critical limb ischemia ( `` cli '' ) ; clbs14-cmd , in phase 2 in the u.s. for the treatment of coronary microvascular dysfunction ( `` cmd '' ) ; clbs14-norda ( previously known as clbs14-rfa ) , for which we are in discussions with the u.s. food and drug administration ( the `` fda '' ) to finalize the phase 3 trial protocol for no-option refractory disabling angina ( `` norda '' ) ; and one autoimmune product candidate , clbs03 , an ex vivo expanded polyclonal t regulatory cell therapy for the treatment of recent-onset type 1 diabetes ( `` t1d '' ) for which we completed the analysis of the one-year follow-up data for the primary endpoint of a phase 2a study and publicly reported on february 13 , 2019 that the study did not meet its primary endpoint . ischemic repair ( cd34 cell technology ) our cd34+ cell technology has led to the development of therapeutic product candidates designed to address diseases and conditions caused by ischemia . ischemia occurs when the supply of oxygenated blood to healthy tissue is restricted . through the administration of cd34+ cells , we seek to promote the development and formation of new microvasculature and thereby increase blood flow to the impacted area . we believe that a number of conditions caused by underlying ischemic injury can be improved through our cd34+ cell technology , including but not limited to cli , cmd and norda . regarding clbs12 , our product candidate for cli , after detailed discussion and agreement with the japanese pharmaceutical and medical device agency ( `` pmda '' ) , we opened a phase 2 trial for enrollment in december 2017 and announced in march 2018 treatment of the first patient . based on our discussions with the pmda , we expect that a successful outcome of this trial will make clbs12 eligible for early conditional approval in japan , thereby effectively making our phase 2 trial a potential registration trial in that strategic market . the initial responses observed in the small number of subjects who have reached an endpoint in this open label study are consistent with a positive therapeutic effect and safety profile as reported by previously published clinical trials in japan and the u.s. while these early signs are encouraging , it is clear that the final outcome of the trial will be dependent on all data from all subjects . in october 2017 , we announced the award of a $ 1.9 million grant from the national institutes of health to support a clinical study of cd34+ cells in patients with cmd . story_separator_special_tag additionally , we used equity and equity-linked instruments to pay for services and compensation . net cash provided by or used in operating , investing and financing activities from continuing operations were as follows ( in thousands ) : 43 index replace_table_token_3_th operating activities - continuing operations our cash used in operating activities in the year ended december 31 , 2018 totaled approximately $ 20.0 million , which is the sum of ( i ) our net loss from continuing operations of $ 16.2 million , and adjusted for non-cash income and expenses totaling $ 1.5 million ( which includes adjustments for equity-based compensation , depreciation and amortization , gain on disposal of assets , and amortization/accretion of marketable securities ) , and ( ii ) changes in operating assets and liabilities of approximately $ 5.3 million . our cash used in operating activities in the year ended december 31 , 2017 totaled approximately $ 20.2 million , which is the sum of ( i ) our net loss from continuing operations of $ 16.2 million , and adjusted for non-cash income and expenses totaling $ 9.2 million ( which includes adjustments for equity-based compensation , depreciation and amortization , loss on disposal of assets , deferred income taxes , income tax benefit , and amortization/accretion of marketable securities ) , and ( ii ) changes in operating assets and liabilities of approximately $ 5.1 million . investing activities - continuing operations our cash used in investing activities in the year ended december 31 , 2018 totaled approximately $ 4.7 million and was primarily due to investments of $ 7.1 million in marketable securities ( net ) , approximately $ 0.1 million for equipment purchases , and partially offset by $ 2.6 million in proceeds from the sale of our counterflow centrifuge system , or cfc , device . our cash provided by investing activities in the year ended december 31 , 2017 totaled approximately $ 41.5 million . in 2017 , we received $ 74.6 million in net proceeds in connection with the sale of our 80.1 % ownership interest in pct to hitachi , less $ 6.7 million of cash held by our pct subsidiary on the date of the acquisition . we also invested $ 26.3 million in marketable securities ( net ) and spent approximately $ 0.1 million for property and equipment . financing activities - continuing operations during the year ended december 31 , 2018 , our financing activities consisted of the following : we raised net proceeds of approximately $ 1.0 million through the issuance of 149,041 shares of our common stock under the provisions of our common stock sales agreement with h.c. wainwright . we raised $ 0.4 million option exercise proceeds . we paid $ 0.2 million for obligations under equipment finance leases . we made tax withholding-related payments on net share settlement equity awards to employees of $ 0.4 million . during the year ended december 31 , 2017 , our financing activities consisted of the following : we paid $ 5.7 million in principal payments on our long-term debt to oxford finance , which was fully repaid and retired in may 2017. we raised gross proceeds of approximately $ 4.4 million through the issuance of approximately 932,204 shares of our common stock under the conditions of the second closing relating to the september 2016 private placement offering . we raised gross proceeds of approximately $ 1.2 million through the issuance of approximately 210,506 shares of our common stock under the provisions of our common stock purchase agreement with aspire . we received proceeds of $ 0.4 million from the issuance of notes payable relating to certain insurance policies and equipment financings , less repayments of $ 1.0 million . 44 index liquidity and capital requirements outlook to meet our short and long-term liquidity needs , we expect to use existing cash balances and a variety of other means . other sources of liquidity could include additional potential issuances of debt or equity securities in public or private financings , partnerships and or collaborations and or sale of assets . our history of operating losses and liquidity challenges may make it difficult for us to raise capital on acceptable terms or at all . the demand for the equity and debt of biopharmaceutical companies like ours is dependent upon many factors , including the general state of the financial markets . during times of extreme market volatility , capital may not be available on favorable terms , if at all . our inability to obtain such additional capital could materially and adversely affect our business operations . we will also continue to seek , as appropriate , grants for scientific and clinical studies from various governmental agencies and foundations . we believe that our cash on hand will enable us to fund operating expenses for at least the next 12 months following the issuance of our financial statements . any future development of clbs14-norda will be the subject of the use of proceeds of a future capital raise . similarly , any future development of clbs12 in the usa will also be the subject of the use of proceeds of a future capital raise . on march 13 , 2019 , the company and lincoln park capital fund , llc ( “ lincoln park ” ) entered into a purchase agreement ( the “ purchase agreement ” ) and a registration rights agreement ( the “ registration rights agreement ” ) , pursuant to which the company has the right to sell to lincoln park shares of the company 's common stock having an aggregate value of up to $ 26 million , subject to certain limitations and conditions set forth in the purchase agreement ( the “ offering ” ) . as consideration for entering into the purchase agreement , the company will issue to lincoln park an additional 181,510 shares of common stock as commitment shares .
| results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 net losses from continuing operations for the years ended december 31 , 2018 and 2017 were each approximately $ 16.2 million . overall net loss for the year ended december 31 , 2018 was approximately $ 16.2 million , compared with overall net income of $ 22.2 million for the year ended december 31 , 2017 . in may 2017 , the company sold its remaining 80.1 % membership interest in pct to hitachi , and as a result , all operations of the pct segment , including the gain on sale of $ 51.7 million , was reported as discontinued operations during the year ended december 31 , 2017 . operating expenses for the year ended december 31 , 2018 , operating expenses totaled $ 17.0 million compared to $ 27.6 million for the year ended december 31 , 2017 , representing a decrease of $ 10.6 million or 38 % . operating expenses were comprised of the following : research and development expenses were approximately $ 7.6 million for the year ended december 31 , 2018 compared to $ 15.8 million for the year ended december 31 , 2017 , representing a decrease of approximately $ 8.2 million , or 52 % . ◦ ischemic repair - ischemic repair expenses were $ 7.5 million for the year ended december 31 , 2018 , representing an increase of approximately $ 4.9 million compared to the year ended december 31 , 2017 . the increase is primarily related to ( i ) expenses associated with our phase 2 study of clbs12 in critical limb ischemia development program in japan , ( ii ) the initiation of our phase 1b/2a study for clbs14-cmd in coronary microvascular dysfunction , and ( iii ) expenses associated with the planning of our clbs14-norda program in no option refractory disabling angina .
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the purchase premium is amortized as an adjustment of the related loan story_separator_special_tag the following discussion and analysis of the financial condition at december 31 , 2018 and results of operations for the year ended december 31 , 2018 of community bankers trust corporation ( the “ company ” ) should be read in conjunction with the company 's consolidated financial statements and the accompanying notes to consolidated financial statements included in this report . general community bankers trust corporation ( the “ company ” ) is headquartered in richmond , virginia and is the holding company for essex bank ( the “ bank ” ) , a virginia state bank with 26 full-service offices in virginia and maryland . the bank also operates one loan production office in virginia . the bank engages in a general commercial banking business and provides a wide range of financial services primarily to individuals , small businesses and larger commercial companies , including individual and commercial demand and time deposit accounts , commercial and industrial loans , consumer and small business loans , real estate and mortgage loans , investment services , on-line and mobile banking products , and cash management services . the company generates a significant amount of its income from the net interest income earned by the bank . net interest income is the difference between interest income and interest expense . interest income depends on the amount of interest earning assets outstanding during the period and the interest rates earned thereon . the company 's cost of funds is a function of the average amount of interest bearing deposits and borrowed money outstanding during the period and the interest rates paid thereon . the mix and product type for both loans and deposits can have a significant effect on the net interest income of the bank . for the past several years , the bank 's focus has been on maximizing that mix through branch growth and targeted product types , with lenders and other employees directly involved with customer relationships . additionally , the quality of the interest earning assets further influences the amount of interest income lost on nonaccrual loans and the amount of additions to the allowance for loan losses . the bank also earns noninterest income from service charges on deposit accounts and other fee or commission-based services and products , such as insurance , mortgage loans , annuities , and other wealth management products . other sources of noninterest income can include gains or losses on securities transactions and income from bank owned life insurance ( boli ) policies . the company 's income is offset by noninterest expense , which consists of salaries and employee benefits , occupancy and equipment costs , data processing expenses , professional fees , transactions involving bank-owned property , and other operational expenses . the provision for loan losses and income taxes may materially affect net income . caution about forward-looking statements the company makes certain forward-looking statements in this report that are subject to risks and uncertainties . these forward-looking statements include statements regarding our profitability , liquidity , allowance for loan losses , interest rate sensitivity , market risk , growth strategy , and financial and other goals . these forward-looking statements are generally identified by phrases such as “ the company expects , ” “ the company believes ” or words of similar import . these forward-looking statements are subject to significant uncertainties because they are based upon or are affected by factors , including , without limitation , the effects of and changes in the following : · the quality or composition of the company 's loan or investment portfolios , including collateral values and the repayment abilities of borrowers and issuers ; 22 · assumptions that underlie the company 's allowance for loan losses ; · general economic and market conditions , either nationally or in the company 's market areas ; · the interest rate environment ; · competitive pressures among banks and financial institutions or from companies outside the banking industry ; · real estate values ; · the demand for deposit , loan , and investment products and other financial services ; · the demand , development and acceptance of new products and services ; · the performance of vendors or other parties with which the company does business ; · time and costs associated with de novo branching , acquisitions , dispositions and similar transactions ; · the realization of gains and expense savings from acquisitions , dispositions and similar transactions ; · assumptions and estimates that underlie the accounting for purchased credit impaired loans ; · consumer profiles and spending and savings habits ; · levels of fraud in the banking industry ; · the level of attempted cyber attacks in the banking industry ; · the securities and credit markets ; · costs associated with the integration of banking and other internal operations ; · the soundness of other financial institutions with which the company does business ; · inflation ; · technology ; and · legislative and regulatory requirements . these factors and additional risks and uncertainties are described in the “ risk factors ” discussion in part i , item 1a , of this report . although the company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations , there can be no assurance that actual results , performance or achievements of the company will not differ materially from any future results , performance or achievements expressed or implied by such forward-looking statements . critical accounting policies the company 's financial statements are prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . the financial information contained within the statements is , to a significant extent , financial information that is based on measures of the financial effects of transactions and events that have already occurred . story_separator_special_tag the company manages risk by using specific underwriting policies and procedures for these types of loans . · all other loans generally support the obligations of state and political subdivisions in the u.s. and are not a material source of business for the company . the loans carry risks associated with the continued credit-worthiness of the obligations and economic activity . the company manages risk by using specific underwriting policies and procedures for these types of loans . while management uses the best information available to make its evaluation , future adjustments to the allowance may be necessary if there are significant changes in economic conditions . in addition , regulatory agencies , as an integral part of their examination process , periodically review the company 's allowance for loan losses , and may require the company to make additions to the allowance based on their judgment about information available to them at the time of their examinations . the allowance consists of specific , general and unallocated components . for loans that are also classified as impaired , an allowance is established when the collateral value ( or discounted cash flows or observable market price ) of the impaired loan is lower than the carrying value of that loan . the general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors . the unallocated component covers uncertainties that could affect management 's estimate of probable losses . a loan is considered impaired when , based on current information and events , it is probable that the company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . factors considered by management in determining impairment include payment status , collateral value , and the probability of collecting scheduled principal and interest payments when due . loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired . management determines the significance of payment delays and payment shortfalls on a case-by-case basis , taking into consideration all of the circumstances surrounding the loan and the borrower , including the length of the delay , the reasons for the delay , the borrower 's prior payment record , and the amount of the shortfall in relation to the principal and interest owed . impairment is measured by either the present value of the expected future cash flows discounted at the loan 's effective interest rate , the loan 's obtainable market price , or the fair value of the collateral if the loan is collateral dependent . large groups of smaller balance homogeneous loans are evaluated for impairment as a pool . accordingly , the company does not separately analyze these individual loans for impairment disclosures . accounting for certain loans acquired in a transfer financial accounting standards board ( fasb ) accounting standards codification ( asc ) 310 , receivables requires acquired loans to be recorded at fair value and prohibits carrying over valuation allowances in the initial accounting for acquired impaired loans . loans carried at fair value , mortgage loans held for sale , and loans to borrowers in good standing under revolving credit arrangements are excluded from the scope of fasb asc 310 which limits the yield that may be accreted to the excess of the undiscounted expected cash flows over the investor 's initial investment in the loan . the excess of the contractual cash flows over expected cash flows may not be recognized as an adjustment of yield . subsequent increases in cash flows to be collected are recognized prospectively through an adjustment of the loan 's yield over its remaining life . decreases in expected cash flows are recognized as impairments through the allowance for loan losses . the company 's acquired loans from the suburban federal savings bank ( sfsb ) transaction ( the “ pci loans ” ) , subject to fasb asc topic 805 , business combinations , were recorded at fair value and no separate valuation allowance was recorded at the date of acquisition . fasb asc 310-30 , loans and debt securities acquired with deteriorated credit quality , applies to loans acquired in a transfer with evidence of deterioration of credit quality for which it is probable , at acquisition , that the investor will be unable to collect all contractually required payments receivable . the company is applying the provisions of fasb asc 310-30 to all loans acquired in the sfsb transaction . the company has grouped loans together based on common risk characteristics including product type , delinquency status and loan documentation requirements among others . the pci loans are subject to the credit review standards described above for loans . if and when credit deterioration occurs subsequent to the date that the loans were acquired , a provision for loan loss for pci loans will be charged to earnings for the full amount . 25 the company has made an estimate of the total cash flows it expects to collect from each pool of loans , which includes undiscounted expected principal and interest . the excess of that amount over the fair value of the pool is referred to as accretable yield . accretable yield is recognized as interest income on a constant yield basis over the life of the pool . the company also determines each pool 's contractual principal and contractual interest payments . the excess of that amount over the total cash flows that it expects to collect from the pool is referred to as nonaccretable difference , which is not recorded . judgmental prepayment assumptions are applied to both contractually required payments and cash flows expected to be collected at acquisition . over the life of the loan or pool , the company continues to estimate cash flows expected to be collected . subsequent decreases in cash flows expected to be collected over the life of the pool are recognized as an impairment in the current period through the allowance for loan losses .
| results of operations net income for the year ended december 31 , 2018 , net income was $ 13.7 million , or $ 0.62 per basic share and $ 0.61 per fully diluted share , compared with net income of $ 7.2 million , or $ 0.33 per basic share and $ 0.32 per fully diluted share , for the year ended december 31 , 2017. net income in 2017 was affected by a charge of $ 3.5 million to income tax expense in the fourth quarter of 2017 related to the re-measurement of net deferred tax assets resulting from the new 21 % federal corporate tax rate established by the tax cuts and jobs act of 2017. net interest income the company 's operating results depend primarily on its net interest income , which is the difference between interest income on interest earning assets , including securities and loans , and interest expense incurred on interest bearing liabilities , including deposits and other borrowed funds . net interest income is affected by changes in the amount and mix of interest earning assets and interest bearing liabilities , referred to as a “ volume change. ” it is also affected by changes in yields earned on interest earning assets and rates paid on interest bearing deposits and other borrowed funds , referred to as a “ rate change. ” net interest income was $ 47.2 million for the year ended december 31 , 2018 , an increase of $ 3.1 million , or 7.0 % , compared with the year ended december 31 , 2017. interest and fees on loans of $ 46.3 million for 2018 was an increase of $ 6.0 million compared with $ 40.3 million for 2017. interest and fees on pci loans declined $ 511,000 over this same time frame .
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we are actively recruiting best-of-breed partners in various vertical markets including , healthcare , finance , government , etc , to help us rapidly expand our enterprise customer base . we also intend to establish the exclusive secure domain name registry in the united states and other key markets around the world . we are a holding company and conduct our operations through our wholly-owned subsidiary , virnetx , inc. virnetx , inc. , was incorporated in the state of delaware in august 2005. in november 2006 , virnetx , inc. acquired certain patents from saic , now leidos . in july 2007 , we effected a merger by and among virnetx , inc. , virnetx holding corporation and a wholly-owned subsidiary of virnetx holding corporation , whereby virnetx , inc. merged with , and became , a wholly-owned subsidiary of virnetx holding corporation and virnetx holding corporation issued shares of its common stock to the stockholders of virnetx , inc. as consideration for the merger . as a result of this merger , the former security holders of virnetx , inc. came to own a majority of our outstanding common stock . on october 29 , 2007 , we changed our name from pasw , inc. to virnetx holding corporation . our portfolio of intellectual property is the foundation of our business model . we currently own approximately 185 u.s. and foreign patents , patent validations and pending applications . our patent portfolio is primarily focused on securing real-time communications over the internet , as well as related services such as the establishment and maintenance of a secure domain name registry . our patented methods also have additional applications in the key areas of device operating systems and network security for cloud services , m2m communications in areas of smart city , connected car and connected home . 31 we have submitted a declaration with the 3 rd generation partnership project , or 3gpp , identifying a group of our patents and patent applications that we believe are or may become essential to certain developing specifications in the 3gpp lte , sae project . we have agreed to make available a non-exclusive patent license under fair , reasonable and non-discriminatory terms and conditions , with compensation , or frand , to 3gpp members desiring to implement the technical specifications identified by us . we believe that we are positioned to license our essential security patents to 3gpp members as they move into 4g . we believe that the market opportunity for our software and technology solutions is large and expanding as secure domain names are now an integral part of securing the next generation 4g/lte advanced wireless networks and m2m communications in areas including smart city , connected car and connected home . we also believe that all 4g/lte advanced mobile devices will require unique secure domain names and become part of a secure domain name registry . we intend to license our patent portfolio , technology and software , including our secure domain name registry service , to domain infrastructure providers , communication service providers as well as to system integrators . we intend to seek further license of our technology , including our gabriel connection technology to enterprise customers , developers and original equipment manufacturers , or oems , of chips , servers , smart phones , tablets , e-readers , laptops , net books and other devices , within the ip-telephony , mobility , fixed-mobile convergence and unified communications markets including 4g/lte . we have published our royalty rates and guidelines on our website . all forward moving licenses have adhered to these guidelines and have met or exceeded these rates and we will use these rates and guidelines in all future license negotiations . our software and technology solutions , including our secure domain name registry and gabriel connection technology , are designed to facilitate secure communications and provide the security platform required by next-generation internet-based applications such as instant messaging , or im , voice over internet protocol , or voip , mobile services , streaming video , file transfer , remote desktop and , or m2m communications . our technology generates secure connections on a zero-click or single-click basis , significantly simplifying the deployment of secure real-time communication solutions by eliminating the need for end-users to enter any encryption information . our product gabriel secure communication platform , unlike other collaboration and communication products and services on the market today , does not require access to user 's confidential data and minimizes the threat of hacking and data mining . it enables individuals and organizations to maintain complete ownership and control over their personal and confidential data , secured within their own private network , while enabling authorized secure encrypted access from anywhere at any time . our gabriel collaboration suite is a set of applications that run on top of our gabriel secure communication platform . it enables seamless and secure cross-platform communications between user 's devices that have our software installed . our gabriel collaboration suite is available for download and free trial , for android , ios , windows , linux and mac os x platforms , at http : //www.gabrielsecure.com/ . we continue to enhance our products and add new functionality to our products . we will provide updates to new and existing customers as they are released to the general public . we have signed patent license agreements with avaya inc. , aastra usa , inc. , microsoft corporation , mitel networks corporation , nec corporation and nec corporation of america , siemens enterprise communications gmbh & co. kg , and siemens enterprise communications inc. to license certain of our patents , for a one-time payment and or an ongoing royalty for all future sales through the expiration of the licensed patents with respect to certain current and future ip-encrypted products . we have engaged ipvalue management inc. to assist us in commercializing our portfolio of patents on securing real-time communications over the internet . story_separator_special_tag the jury trial of our case against apple was held on october 31 , 2012. on november 6 , 2012 , a jury in the united states court for the eastern district of texas , tyler division , awarded us over $ 368 million in a verdict against apple for infringing four of our patents . on february 26 , 2013 , the court issued its memorandum opinion and order regarding post-trial motions resulting from the prior jury verdict denying apple 's motion to reduce the damages awarded by the jury for past infringement . the court further denied apple 's request for a new trial on the liability and damages portions of the verdict and granted our motions for pre-judgment interest , post-judgment interest , and post-verdict damages to date . the court ordered that apple pay $ 34 thousand in daily interest up to final judgment 33 and $ 330 thousand in daily damages for infringement up to final judgment for certain apple devices included in the verdict . the court denied our request for a permanent injunction and severed the future infringement portion into its own separate proceedings under case 6:13-cv-00211-led . on july 3 , 2013 , apple filed an appeal of the judgment dated february 27 , 2013 and order dated june 4 , 2013 denying apple 's motion to alter or amend the judgment to the uscafc . on september 16 , 2014 , uscafc issued their opinion , affirming the jury 's finding that all 4 of our patents are valid , confirming the jury 's finding of infringement of vpn on demand under many of the asserted claims of our ‘ 135 and ‘ 151 patents , and confirming the district 's court 's decision to allow evidence concerning our licenses and royalty rates in connection with the determination of damages . in its opinion , the uscafc also vacated the jury 's damages award and the district court 's claim construction with respect to parts of our ‘ 504 and ‘ 211 patents and remanded the damages award and determination of infringement with respect to facetime –for further proceedings consistent with its opinion . on october 16 , 2014 , we filed a petition with the uscafc , requesting a rehearing and rehearing en banc of the federal circuit 's september 14 , 2014 , decision concerning virnetx 's litigation against apple inc. on december 16 , 2014 , uscafc denied our petition requesting a rehearing and rehearing en banc of the federal circuit 's september 14 , 2014 , decision and remanded the case back to the eastern district of texas , tyler division , for further proceedings consistent with its opinion . on february 25 , 2015 , uscafc granted apple 's motions to lift stay of proceedings and vacate case 6:13-cv-00211-led . on march 30 , 2015 , the court issued an order finding substantial overlap between the remanded portions of this case and the ongoing civil action case 6:12-cv-00855-led ( virnetx inc. v. apple , inc. ) . the court consolidated the two civil actions under civil action case 6:12-cv-00855-led ( virnetx inc. v. apple , inc. ) and designated it as the lead case . on july 29 , 2016 , the court issued a new order , vacating its previous orders consolidating the cases apple i case and apple ii case , ordering that the two cases be retried separately , and setting the retrial date for apple i case with jury selection to begin on september 26 , 2016. the court also ordered that the issue of willfulness in both cases is bifurcated and that the apple ii will be retried after apple i case . the jury trial in this case was held on september 26 , 2016. on september 30 , 2016 , a jury in the united states court for the eastern district of texas , tyler division , in the case virnetx inc. , et al . v. apple inc. , no . apple i , has awarded virnetx $ 302.4 million in a verdict against apple for infringing four virnetx patents , marking the third time a federal jury has found apple liable for infringing virnetx 's patented technology . the verdict includes royalties awarded to virnetx , for unresolved issues in the apple i case , remanded back from the uscafc , related to ( 1 ) damages owed to virnetx for infringement by apple 's original vpn-on-demand ( vod ) and ( 2 ) the alleged infringement by apple 's original facetime product , under the new claim construction of secure communication link pertaining to the '504 and '211 patents by the uscafc , and the damages associated with that infringement . the hearing on all the post-trial motions was held on november 22 , 2016. on september 29 , 2017 , the united states district court for the eastern district of texas , tyler division , entered final judgement and issued its memorandum opinion and order regarding post-trial motions resulting from the prior $ 302.4 million jury verdict for virnetx in the apple i case . in the order , the court denied all of apple 's post-trial motions including motion for judgment as a matter of law of non-infringement , motion for judgment as a matter of law on damages , motion for a new trial on infringement , and motion for a new trial on damages . the court granted all virnetx 's post-trial motions including motion for willful infringement and enhanced the royalty rate during the willfulness period by 50 percent , from $ 1.20 to $ 1.80 per device , awarding virnetx , enhanced damages in the amount of $ 41.3 million against apple thereby , granting virnetx a total sum of $ 343.7 million in pre-interest damages . the court also awarded costs , certain attorneys ' fees , and prejudgment interest to virnetx , and directed the parties to meet and confer regarding these amounts .
| results of operations ( all amounts in this section are expressed in thousands ) revenue 2017 2016 2015 revenue $ 1,547 $ 1,550 $ 1,555 revenue generated for the year ended december 31 , 2017 was $ 1,547 compared to december 31 , 2016 of $ 1,550 , and december 31 , 2015 revenue of approximately $ 1,555. revenue for the year ended december 31 , 2017 of $ 1,547 , was largely attributable to the 2013 contract settlement described under the heading deferred revenue above . under the terms of the 2013 contract settlement we were paid annual payments of $ 2,500 over the contract period for a total of $ 10,000. during 2017 , 2016 and 2015 we recognized $ 1,500 of revenue for royalties from the 2013 contract settlement and $ 47 , $ 50 and $ 55 respectively of revenue for royalties from other licensees . in addition to the settlement discussed above , during 2017 , 2016 and 2015 we recognized royalty revenue as part of license agreements entered into with customers during the patent infringement actions ( see note 14 litigation ) . these revenues relate to payment for use of our patented technology prior to the signing of a license agreement , and royalty payments after the execution of the license agreements . no amounts were allocable to settlement fees , expense reimbursement , damages or any other amounts other than historical and future sales as no such amounts were requested or received . research and development expenses 2017 2016 2015 research and development $ 2,674 $ 2,499 $ 2,277 research and development costs include expenses paid to outside development consultants and compensation-related expenses for our engineering staff . research and development costs are expensed as incurred .
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the 2017 tax act also imposed a mandatory one-time tax on accumulated earnings of foreign subsidiaries as of december 31 , 2017. in accordance with the 2017 tax act and related guidance , the company recorded $ 7.4 million as a provisional income tax expense in the fourth quarter of 2017 , the period in which the legislation was enacted . the total expense included $ 7.4 million related to the transition tax and a benefit of $ 7.8 million related to the remeasurement of certain deferred tax assets and liabilities . in finalizing its analysis in 2018 the company recorded an immaterial amount of adjustments to the original provisional amounts . the 2017 tax act created a provision known as global intangible low-tax income ( “ gilti ” ) that imposes a u.s. tax on certain earnings of foreign subsidiaries that are subject to foreign tax below a certain threshold . the company has made an accounting policy election to reflect gilti taxes , story_separator_special_tag . cautionary statement regarding forward-looking statements this annual report on form 10-k contains forward-looking statements , within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended , which reflect the company 's current estimates , expectations and projections about the company 's future results , performance , prospects and opportunities . forward-looking statements include , among other things , the information concerning the company 's possible future results of operations including revenue , costs of goods sold , gross margin , future profitability , future economic improvement , business and growth strategies , financing plans , expected leverage levels , the company 's competitive position and the effects of competition , the projected growth of the industries in which we operate , and the company 's ability to consummate strategic acquisitions and other transactions . forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as “ anticipate , ” “ believe , ” “ could , ” “ estimate , ” “ expect , ” “ intend , ” “ plan , ” “ may , ” “ should , ” “ will , ” “ would , ” “ project , ” “ forecast , ” and similar expressions or variations . these forward-looking statements are based upon information currently available to the company and are subject to a number of risks , uncertainties , and other factors that could cause the company 's actual results , performance , prospects , or opportunities to differ materially from those expressed in , or implied by , these forward-looking statements . important factors that could cause the company 's actual results to differ materially from the results referred to in the forward-looking statements the company makes in this report include : the effects of intense competition in the markets in which we operate ; the cyclical nature of the markets in which we operate ; the loss of independent distributors on which we rely ; changes in market conditions in which we operate that would influence the value of the company 's stock ; the company 's ability to achieve its business plans , including with respect to an uncertain economic environment ; the risks associated with international operations , including currency risks ; the risks associated with and potential impacts of new trade policies , legislation , treaties , and tariffs both in and outside of the united states ; the company 's ability to retain existing customers and our ability to attract new customers for growth of our business ; the effects of the loss or bankruptcy of or default by any significant customer , suppliers , or other entity relevant to the company 's operations ; political and economic conditions globally , nationally , regionally , and in the markets in which we operate ; natural disasters , war , civil unrest , terrorism , fire , floods , tornadoes , earthquakes , hurricanes , pandemics or other matters beyond the company 's control ; the company 's risk of loss not covered by insurance ; the accuracy of estimated forecasts of oem customers and the impact of the current global and european economic environment on our customers ; the risks associated with certain minimum purchase agreements we have with suppliers ; disruption of our supply chain ; fluctuations in the costs of raw materials used in our products ; the outcome of litigation to which the company is a party from time to time , including product liability claims ; work stoppages and other labor issues ; changes in employment , environmental , tax and other laws , including enactment of the 2017 tax act , and changes in the enforcement of laws ; the company 's ability to attract and retain key executives and other personnel ; the company 's ability to successfully pursue the company 's development activities and successfully integrate new operations and systems , including the realization of revenues , economies of scale , cost savings , and productivity gains associated with such operations ; the company 's ability to obtain or protect intellectual property rights and avoid infringing on the intellectual property rights of others ; 33 the risks associated with the portion of the company 's total assets comprised of goodwill and indefinite lived intangibles ; changes in market conditions that would result in the impairment of goodwill or other assets of the company ; changes in accounting rules and standards , audits , compliance with the sarbanes-oxley act , and regulatory investigations ; the effects of changes to critical accounting estimates ; changes in volatility of the company 's stock price and the risk of litigation following a decline in the price of the company 's stock ; failure of the company 's operating equipment or information technology infrastructure , including cyber-attacks or other security breaches , and failure to comply with data privacy laws or regulations ; the company 's ability to implement and maintain its enterprise resource planning ( erp ) system ; story_separator_special_tag on october 1 , 2018 , altra consummated the fortive transaction and acquired the a & s business for an aggregate purchase price of approximately $ 2,855.7 million , subject to certain post-closing adjustments , which consisted of $ 1,400.0 million of cash and debt instruments transferred to fortive and shares of altra common stock received by fortive shareholders valued at approximately $ 1,455.7 million . as of december 31 , 2019 , the initial accounting for the fortive transaction ( including the allocation of the purchase price to acquired assets and liabilities ) is complete . business outlook our future financial performance depends , in large part , on conditions in the markets that we serve and on conditions in the u.s. , european , and global economies in general . in the year ended december 30 , 2019 , against the backdrop of a challenging market environment and topline revenue headwinds , we were pleased with our operating performance highlighted by strong cash management and disciplined debt pay down . nevertheless , we expect this challenging market environment to continue in the foreseeable future . as a result , we remain focused on cost containment , while working to ensure that we protect the long-term growth opportunities for the business . in 2019 , we also completed the tactical integration of the a & s business operations into altra 's structure and began to integrate our business system across the entire organization by developing and utilizing best practices from both the a & s business and legacy altra businesses . looking ahead to 2020 , we remain focused on capturing synergies from the a & s transaction in support of our synergy target through an ongoing focus on supply chain optimization , value engineering , facility consolidations , and further development of our business system . in addition , we are also starting to shift more of our attention to capturing sales synergies . we also will continue to prioritize cash generation and debt paydown to expediently de-lever to our target leverage ratio and to strengthen our balance sheet . furthermore , we plan to focus on deploying our resources to ensure we are well positioned to capitalize on high-growth opportunities for altra . 35 in december 2019 , a novel strain of coronavirus began to impact the population of china , where several of our manufacturing and distribution facilities are located . in late january and early february 2020 , in an effort to contain the spread of the virus and maintain the wellbeing of our employees and in accordance with governmental requirements , we closed several production facilities in china . we rely upon these facilities to support our business in china , as well as to export components for use in products in other parts of the world . while the closures and limitations on movement in china are expected to be temporary , the duration of the production and supply chain disruption , and related financial impact , can not be estimated at this time . should the production and distribution closures continue for an extended period of time or should the effects of the coronavirus spread beyond china , the impact on our supply chain in china and globally could have a material adverse effect on our results of operations and cash flows . critical accounting policies the methods , estimates and judgments we use in applying our critical accounting policies have a significant impact on the results we report in our financial statements . we evaluate our estimates and judgments on an on-going basis . our estimates are based upon historical experience and assumptions that we believe are reasonable under the circumstances . our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may vary from what our management anticipates and different assumptions or estimates about the future could change our reported results . we believe the following accounting policies are the most critical in that they are important to the financial statements and they require the most difficult , subjective or complex judgments in the preparation of the financial statements . inventory . inventories are generally stated at the lower of cost or net realizable value using the first-in , first-out ( fifo ) method . the cost of inventory includes direct materials , direct labor , and production overhead . we state inventories acquired through acquisitions at their fair value at the date of acquisition based on the replacement cost of raw materials , the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts , and , for work-in-process , the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts and costs to complete . we periodically review our quantities of inventories on hand and compare these amounts to the historical and expected usage of each particular product or product line . we record as a charge to cost of sales any amounts required to reduce the carrying value of inventories to net realizable value . business combinations . business combinations are accounted for at fair value . acquisition costs are generally expensed as incurred and recorded in selling , general and administrative expenses . the accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business , and the allocation of those cash flows to identifiable intangible assets , in determining the estimated fair value for assets and liabilities acquired . the fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management 's estimates and assumptions , as well as other information compiled by management , including valuations that utilize customary valuation procedures and techniques .
| results of operations . amounts in millions , except percentage data replace_table_token_5_th segment performance . amounts in thousands , except percentage data replace_table_token_6_th year ended december 31 , 2019 compared with year ended december 31 , 2018 replace_table_token_7_th net sales . the increase in net sales during the year ended december 31 , 2019 is primarily due to increased sales resulting from the addition of the a & s business in the amount of $ 931.0 million . excluding the impact of a & s sales , net sales decreased $ 48.4 million compared to the prior year . this was mainly due to cyclicality of the heavy-duty truck market . changes in foreign exchange had an unfavorable impact on net sales of $ 24.4 million compared to the prior year , primarily driven by the euro . this decrease was offset by price , which had a favorable impact during the year of $ 21.2 million . replace_table_token_8_th 38 gross profit . gross profit as a percentage of net sales increased during the year ended december 31 , 2019 primarily due to the addition of the higher margin a & s business . the increase is also partially driven by the 2018 impact of amortization of acquired inventory related to the a & s acquisition in the amount of $ 14.2 million recorded at fair value rather than cost . additionally , a portion of the increase resulted from improvements realized from facility consolidation , material cost savings , and price increases . replace_table_token_9_th selling , general and administrative expenses . for the year ended december 31 , 2019 , sg & a as a percentage of net sales increased primarily due to costs associated with the addition of the a & s business . the increase was partially driven by the inclusion of $ 202.7 million of sg & a related to the a & s business , including $ 61.2 million of amortization expense .
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item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures . disclosure controls and procedures . disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) ) of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) are designed to ensure that ( 1 ) information required to be disclosed in reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time periods specified in sec rules and forms ; and ( 2 ) that such information is accumulated and communicated to management , including the principal executive officer and principal financial officer , to allow timely decisions regarding required disclosures . there are inherent limitations to the effectiveness of any system of disclosure controls and procedures , including the possibility of human error and the circumvention or overriding of controls and procedures . accordingly , even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives . the company 's management , including the company 's chief executive officer and chief financial officer , evaluated the effectiveness of the design and operation of the company 's disclosure controls and procedures as of june 30 , 2019 . the company 's management has concluded that the company 's disclosure controls and procedures as of june 30 , 2019 were effective . management 's annual report on internal controls over financial reporting . the company 's management , including its chief executive officer and chief financial officer , is responsible for establishing and maintaining adequate internal control over financial reporting ( as defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) ) and designing such internal controls to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america . there are inherent limitations to the effectiveness of any system of internal control over financial reporting , including the possibility of human error or the circumvention or overriding of controls and procedures . accordingly , even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives . management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the framework in the “ 1992 internal control-integrated framework , ” the 2006 `` internal control over financial reporting - guidance for smaller public companies , '' and the `` 2013 coso framework & sox compliance , '' all issued by the committee of sponsoring organizations of the treadway commission ( “ coso ” ) . in connection with this evaluation , there were no changes in the company 's internal control over financial reporting ( as such term is defined in rule 13a-15 ( f ) and 15d-15 ( f ) of the exchange act ) during the quarter ended june 30 , 2019 that have materially affected , or are reasonably likely to materially affect , the company 's internal control over financial reporting . based on this evaluation , management has concluded that the company 's internal control over financial reporting as of june 30 , 2019 was effective . 14 part iii item 10. directors , executive officers and corporate governance . this information is incorporated by reference to the sections entitled `` information as to the nominees , '' `` board committees - audit committee , '' `` code of ethics , '' `` executive officers , '' and `` section 16 ( a ) beneficial ownership reporting compliance '' from koss corporation 's proxy statement for its 2019 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. the company adopted a code of ethics , which is a `` code of ethics '' as defined by applicable rules of the sec , which is applicable to its directors , officers and employees . the code of ethics is publicly available on the company 's website at investors.koss.com . if the company makes any substantive amendments to the code of ethics or grants any waiver , including any implicit waiver , from a provision of the code to its principal executive officer , principal financial officer , principal accounting officer or controller or persons performing similar functions , the company will disclose the nature of the amendment or waiver on that website or in a report on form 8-k. item 11. executive compensation . this information is incorporated by reference to the sections entitled `` board committees - compensation committee , '' `` summary compensation table , '' `` outstanding equity awards at fiscal year end , '' and `` director compensation table '' from koss corporation 's proxy statement for its 2019 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 12. security ownership of certain beneficial owners and management and related stockholder matters . this information is incorporated by reference to the sections entitled `` beneficial ownership of company securities '' and `` outstanding equity awards at fiscal year end '' from koss corporation 's proxy statement for its 2019 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 13. certain relationships and related transactions , and director independence . this information is incorporated by reference to the sections entitled `` board committees , '' `` independence of the board '' and `` related party transactions '' from koss corporation 's proxy statement for its 2019 annual meeting of stockholders filed with the commission under regulation 14a within story_separator_special_tag item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures . disclosure controls and procedures . disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) ) of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) are designed to ensure that ( 1 ) information required to be disclosed in reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time periods specified in sec rules and forms ; and ( 2 ) that such information is accumulated and communicated to management , including the principal executive officer and principal financial officer , to allow timely decisions regarding required disclosures . there are inherent limitations to the effectiveness of any system of disclosure controls and procedures , including the possibility of human error and the circumvention or overriding of controls and procedures . accordingly , even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives . the company 's management , including the company 's chief executive officer and chief financial officer , evaluated the effectiveness of the design and operation of the company 's disclosure controls and procedures as of june 30 , 2019 . the company 's management has concluded that the company 's disclosure controls and procedures as of june 30 , 2019 were effective . management 's annual report on internal controls over financial reporting . the company 's management , including its chief executive officer and chief financial officer , is responsible for establishing and maintaining adequate internal control over financial reporting ( as defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) ) and designing such internal controls to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america . there are inherent limitations to the effectiveness of any system of internal control over financial reporting , including the possibility of human error or the circumvention or overriding of controls and procedures . accordingly , even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives . management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the framework in the “ 1992 internal control-integrated framework , ” the 2006 `` internal control over financial reporting - guidance for smaller public companies , '' and the `` 2013 coso framework & sox compliance , '' all issued by the committee of sponsoring organizations of the treadway commission ( “ coso ” ) . in connection with this evaluation , there were no changes in the company 's internal control over financial reporting ( as such term is defined in rule 13a-15 ( f ) and 15d-15 ( f ) of the exchange act ) during the quarter ended june 30 , 2019 that have materially affected , or are reasonably likely to materially affect , the company 's internal control over financial reporting . based on this evaluation , management has concluded that the company 's internal control over financial reporting as of june 30 , 2019 was effective . 14 part iii item 10. directors , executive officers and corporate governance . this information is incorporated by reference to the sections entitled `` information as to the nominees , '' `` board committees - audit committee , '' `` code of ethics , '' `` executive officers , '' and `` section 16 ( a ) beneficial ownership reporting compliance '' from koss corporation 's proxy statement for its 2019 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. the company adopted a code of ethics , which is a `` code of ethics '' as defined by applicable rules of the sec , which is applicable to its directors , officers and employees . the code of ethics is publicly available on the company 's website at investors.koss.com . if the company makes any substantive amendments to the code of ethics or grants any waiver , including any implicit waiver , from a provision of the code to its principal executive officer , principal financial officer , principal accounting officer or controller or persons performing similar functions , the company will disclose the nature of the amendment or waiver on that website or in a report on form 8-k. item 11. executive compensation . this information is incorporated by reference to the sections entitled `` board committees - compensation committee , '' `` summary compensation table , '' `` outstanding equity awards at fiscal year end , '' and `` director compensation table '' from koss corporation 's proxy statement for its 2019 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 12. security ownership of certain beneficial owners and management and related stockholder matters . this information is incorporated by reference to the sections entitled `` beneficial ownership of company securities '' and `` outstanding equity awards at fiscal year end '' from koss corporation 's proxy statement for its 2019 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 13. certain relationships and related transactions , and director independence . this information is incorporated by reference to the sections entitled `` board committees , '' `` independence of the board '' and `` related party transactions '' from koss corporation 's proxy statement for its 2019 annual meeting of stockholders filed with the commission under regulation 14a within
| summary net sales decreased 7.1 % to $ 21,842,097 on volume declines with mass retail in the us and certain us based distributors as well as to an original equipment manufacturer ( `` oem '' ) customer in asia . this was partially offset by improvement in sales to a direct to consumer customer in the us and an increase in sales to the distributor in scandinavia . gross profit as a percent of sales increased 3.4 % to 31.2 % . the increase was primarily due to a change in the mix of sales by product and by channel . selling , general and administrative spending was lower as a result of decreased costs for sales commissions , salaries , benefits and marketing expense . these reductions were partially offset by an increase in legal expense related to enforcement of the company 's ip portfolio . tax expense for the year ended june 30 , 2019 was minimal due to an offsetting change in the valuation allowance for deferred tax assets . during fiscal 2019 the company recorded a tax benefit due to refund of amt carry forward not utilized in prior periods . 9 consolidated results the following table presents selected consolidated financial data for each of the past two fiscal years : replace_table_token_4_th * as adjusted for the retrospective adoption of asc 606 2019 results of operations compared with 2018 net sales for 2019 decreased primarily due to decreased sales to mass retail in the united states , certain us based distributors , and an export oem customer . this was partially offset by improvement in sales to a direct to consumer customer in the us and an increase in sales to a distributor in scandinavia . export net sales decreased by $ 352,159 to $ 6,586,356 . sales to an oem customer in asia decreased by $ 628,014 to $ 976,492 in fiscal year 2019 .
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critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based on the consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , management evaluates the estimates , including but not limited to , those related to receivable allowances , inventories and intangible assets . these estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . though the impact of the covid-19 pandemic to our business and operating results presents additional uncertainty , we continue to use the best information available to inform our critical accounting estimates . actual results may differ from these estimates under different assumptions or conditions . the following critical accounting policy reflects management 's more significant judgments and estimates used in the preparation of the consolidated financial statements . income taxes we account for income taxes using the asset and liability method . under this method , deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carryforwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse . deferred income tax expense represents the change in net deferred income tax assets and liabilities during the year . the determination of income subject to income tax in each tax paying jurisdiction requires us to apply transfer pricing guidelines for certain intercompany transactions . our wholly-owned foreign subsidiaries are comprised of neogen europe , lab m ltd , quat-chem ltd , abtek ( biologicals ) ltd , neogen italia s.r.l. , neogen do brasil , rogama industria e comercio ltda , neogen latinoamérica , productos quimicos magiar s.a. , neogen uruguay , neogen chile spa , neogen bio-scientific technology co ( shanghai ) , neogen food and animal security ( india ) , neogen canada , and neogen australasia pty limited . based on historical experience , as well as our future plans , earnings from these subsidiaries are expected to be re-invested indefinitely for future expansion and working capital needs . furthermore , our domestic operations have historically produced sufficient operating cash flow to mitigate the need to remit foreign earnings . on an annual basis , we evaluate the current business environment and whether any new events or other external changes might require a re-evaluation of the decision to indefinitely re-invest foreign earnings . it is not practicable to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely . on december 22 , 2017 , the tax cuts and jobs act of 2017 ( u.s. tax act ) was signed into law making significant changes to the internal revenue code . changes include a federal corporate tax rate reduced from 35 % to 21 % for tax years beginning after december 31 , 2017 , the transition of u.s. international taxation from a worldwide tax system to a territorial system , and a one-time transition tax on the mandatory deemed repatriation of foreign earnings . the u. s. tax act also includes a provision to tax global intangible low-taxed income ( gilti ) of foreign subsidiaries and a deduction for foreign derived intangible income ( fdii ) , both of which became effective for us beginning june 1 , 2018. see note 6 to the consolidated financial statements for further information . 23 story_separator_special_tag > relationship with this distributor and have begun marketing these products directly into the european market . partially offsetting the decrease in drug residue testing , the natural toxins and allergens product lines each increased 4 % for the year . the natural toxin increase was due to continued new business earned in brazil for aflatoxin and don test kits , partially offset by lower sales of don test kits in the u.s. and france , the result of mild outbreaks in the prior year which did not recur in fiscal 2020. the allergen test kit increase was primarily the result of strong gliadin , milk and coconut allergen test kit sales in the u.s. market , although fourth quarter sales declined 7 % due to lower business with customers supplying restaurants and other food service organizations , which were adversely impacted by covid-19 . bacterial & general sanitation – sales in this category were essentially flat in fiscal 2020 compared to the prior year . sales of test kits to detect pathogens decreased 2 % , as lower sales of ansr equipment were only partially offset by increases from our listeria right now test kit , which grew 24 % in fiscal 2020. sales of our accupoint sanitation monitoring product line increased 6 % , on gains in both readers and samplers . sales of products to detect spoilage organisms in foods decreased 7 % in fiscal 2020 on reduced sales of readers and consumable vials during the year , resulting from lower market demand and customer losses . culture media & other – sales in this category decreased 4 % in fiscal 2020 compared to fiscal 2019. this category includes forensic drug test kits sold within brazil , which declined significantly as a large commercial lab customer in that country moved to an alternative technology which provided higher throughput . story_separator_special_tag sales of test kits to detect pathogens increased 24 % , as we continued to gain new business with our listeria right now test kit that launched in fiscal 2018. sales of our accupoint sanitation monitoring product line increased 11 % , with samplers up 13 % , as we increased our market share . sales of products to detect spoilage organisms in foods increased 3 % . culture media & other – sales in this category increased 13 % in fiscal 2019 compared to fiscal 2018. sales of neogen culture media , formerly marketed as the acumedia and lab m brands , increased 7 % , aided in part by the august 2018 acquisition of clarus labs , which consists of the colitag product and reports in the culture media product line . excluding new business from the acquisition , sales in the neogen culture media product line increased 4 % . this category also includes forensic drug test kits sold within brazil , which increased significantly as business shifted from labs in the u.s. in the prior year ( reported in the animal safety segment ) to labs in brazil and increased demand from commercial laboratories in that country . rodenticides , insecticides & disinfectants – revenues of products in this category sold through our food safety operations increased 7 % in fiscal 2019. this category was led by increases in sales of cleaners and disinfectants to customers in europe , china and india , partially offset by lower sales of insecticides in brazil due to a large government tender in fiscal 2018 which did not recur in fiscal 2019. genomics services – sales of genomics services sold through our food safety operations increased 16 % in fiscal 2019 compared to the same period in the prior year , primarily due to higher sales in the european porcine and bovine markets . we also benefitted from a large , non-recurring research project with the brazilian government , and the commercialization of a new service offering for a type of cattle specific to the brazilian market . animal safety : life sciences – sales in this category decreased 25 % in fiscal 2019 compared to the same period in the prior year , as approximately $ 2.4 million of forensic drug test kit revenues shifted to our operations in brazil , which are reported in the food safety segment . this testing was performed by commercial labs in the u.s. in the prior fiscal year , but has since moved to commercial labs located in brazil . veterinary instruments & disposables – revenues in this category decreased 7 % in fiscal 2019 compared to fiscal 2018. protective wear and consumables decreased 17 % , resulting from poor economic conditions in the commercial dairy production market . veterinary instruments sales were down 4 % for the year , however , this product line had a very strong increase in fiscal 2018 , with sales up 23 % in that period compared to the prior year . a 19 % decline in detectable needles was partially offset by strong increases in disposable syringes and aluminum and poly hub needles . animal care & other – sales of these products decreased 3 % in fiscal 2019. wound care and injectable vitamin products were down 13 % and 6 % , respectively , due to inventory destocking at distributors ; dairy supplies that we distribute were down 5 % , due to poor economic conditions in the commercial dairy production market . additionally , we spent more on promotional programs and rebates with distributors , which are recorded as contra revenues within this category , in fiscal 2019 than in the prior year . partially offsetting these losses were a 12 % increase in sales of our biologics product line and a 7 % increase in supplements and other care products , both due to increased demand from end customers in the companion animal and equine markets . 27 rodenticides , insecticides & disinfectants – sales in this category decreased 2 % in fiscal 2019 , compared to the same period in the prior year . the decrease was due primarily to the full year impact of toll manufacturing business lost in the third quarter of fiscal year 2018. additionally , rodenticide sales declined due to poor weather conditions causing lower demand and a weak u.s. animal protein market partially caused by tariff issues . genomics services – sales in this category increased 11 % in fiscal 2019 , aided by the acquisition of neogen australasia ( september 2017 ) , livestock genetics ( september 2018 ) and delta genomics ( january 2019 ) ; organic growth in this category was 7 % . strong growth in the beef cattle and companion animal markets was partially offset by revenue decreases in u.s. poultry and porcine markets , despite increases in sample volumes , resulting from a shift to lower priced chips and services . additionally , poor economic conditions in the u.s. commercial dairy production market resulted in lower revenues from that market . cost of revenues replace_table_token_7_th cost of revenues was essentially flat in fiscal 2020 compared to fiscal 2019 and rose 5 % in fiscal 2019 compared to fiscal 2018. this compares with revenue increases of 1 % in fiscal 2020 and 4 % in fiscal 2019. expressed as a percentage of sales , cost of revenues was 53.1 % , 53.7 % and 53.2 % in fiscal years 2020 , 2019 and 2018 , respectively . gross margins were 46.9 % , 46.3 % , and 46.8 % for fiscal years 2020 , 2019 , and 2018 , respectively . fiscal 2020 – our overall gross margin improved 60 basis points in fiscal 2020 , primarily from improved gross margin in the animal safety segment and improved efficiencies , resulting from a focus on manufacturing cost reductions . these efforts resulted in a slight decrease in cost of revenues compared to the prior fiscal year .
| results of operations executive overview consolidated revenues were $ 418.2 million in fiscal 2020 , an increase of 1.0 % compared to $ 414.2 million in fiscal 2019. organic sales overall increased 0.2 % compared to the prior year . food safety segment sales were $ 212.7 million in fiscal 2020 compared to $ 213.5 million in fiscal 2019 , a decrease of $ 800,000 , or 0.4 % . organic sales decreased 1.3 % , while the clarus labs ( august 2018 ) acquisition , the purchase of four former distributors and a small manufacturer ( abtek ) completed during the year , contributed $ 2.0 million in revenues . animal safety segment sales were $ 205.5 million in fiscal 2020 , an increase of 2.4 % compared to $ 200.7 million in fiscal 2019. organic sales rose 1.9 % , with the acquisitions of livestock genetic services ( september 2018 ) , delta genomics ( january 2019 ) and cell biosciences ( march 2020 ) contributing the remainder of the growth . international sales were 39.4 % of total sales in fiscal 2020 compared to 40.1 % of total sales in fiscal 2019. our effective tax rate was 17.7 % in fiscal 2020 compared to an effective tax rate of 17.5 % in fiscal 2019. net income was $ 59.5 million , or $ 1.13 per diluted share , a decrease of 1 % compared to $ 60.2 million , or $ 1.15 per share , in the prior year . cash generated from operating activities in fiscal 2020 was $ 85.9 million , compared to $ 63.8 million in fiscal 2019. neogen 's international revenues were $ 164.7 million in fiscal 2020 , compared to $ 165.9 million in fiscal 2019. currency translation had a negative impact during the year .
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we have no reason to believe that its future volatility will differ from the past . risk-free interest ratethe rate is based on the u.s. treasury yield curve in effect at the time of the grant for the same period of time as the expected life . expected dividend yieldthe calculation is based on the total expected annual dividend payout divided by the average stock price . expense we use the straight-line attribution method to recognize expense story_separator_special_tag overview h.b . fuller company is a global formulator , manufacturer and marketer of adhesives and other specialty chemical products . we are managed through five operating segments north america adhesives , construction products , eimea ( europe , india , middle east and africa ) , latin america adhesives and asia pacific . north america adhesives , eimea , latin america adhesives and asia pacific operating segments manufacture and supply adhesives products in the assembly , packaging , converting , nonwoven and hygiene , performance wood , flooring , textile , flexible packaging , graphic arts and envelope markets . construction products operating segment provides floor preparation , grouts and mortars for tile setting as well as sealants and related products for hvac installations . we completed the acquisition of the global industrial adhesives and synthetic polymers business of forbo holding ag on march 5 , 2012. the forbo industrial adhesives business acquired is referred to as the acquired business and the legacy h.b . fuller business is referred to as the legacy business in the management 's discussion and analysis . see item 1. business and note 2 to the consolidated financial statements . we divested our latin america paints business on august 6 , 2012. in accordance with financial accounting standards board ( fasb ) accounting standards codification ( asc ) 205-20 , discontinued operations we have classified the results of this business as discontinued operations . see item 1. business and note 2 to the consolidated financial statements . total company : when reviewing our financial statements , it is important to understand how certain external factors impact us . these factors include : changes in the prices of our raw materials that are primarily derived from refining crude oil and natural gas global supply of and demand for raw materials economic growth rates , and currency exchange rates compared to the u.s. dollar we purchase thousands of raw materials , the majority of which are petroleum/natural gas derivatives . with over 75 percent of our cost of sales accounted for by raw materials , our financial results are extremely sensitive to changing costs in this area . in addition to the impact from feedstock prices , the supply of and demand for raw materials also have a significant impact on our costs . as demand increases in high-growth areas , such as the asia pacific region , the supply of key raw materials may tighten , resulting in certain materials being put on allocation . natural disasters , such as hurricanes , also can have an impact as key raw material producers are shut down for extended periods of time . we continually monitor capacity utilization figures , market supply and demand conditions , feedstock costs and inventory levels , as well as derivative and intermediate prices , which affect our raw materials . in 2012 , we generated 43 percent of our net revenue in the u.s. and 36 percent in eimea . the pace of economic growth in these areas directly impacts certain industries to which we supply products . for example , adhesives-related revenues from durable goods customers in areas such as appliances , furniture and other woodworking applications tend to fluctuate with the overall economic activity . in business components such as construction products and insulating glass , revenues tend to move with more specific economic indicators such as housing starts and other construction-related activity . the movement of foreign currency exchange rates as compared to the u.s. dollar impacts the translation of the foreign entities ' financial statements into u.s. dollars . as foreign currencies strengthen against the dollar , our 19 revenues and costs increase as the foreign currency-denominated financial statements translate into more dollars . the fluctuations of the euro against the u.s. dollar have the largest impact on our financial results as compared to all other currencies . in 2012 , the currency fluctuations had a negative impact on net revenue of $ 41.4 million as compared to 2011. key financial results and transactions for 2012 included the following : net revenue increased 30.6 percent from 2011 primarily driven by the acquired business . gross profit margin decreased to 27.4 percent from 28.0 percent in 2011 and 28.5 percent in 2010 mostly due to lower gross profit margins of the acquired business . cash flow generated from operating activities was $ 108.6 million in 2012 as compared to $ 88.1 million in 2011 and $ 72.2 million in 2010. acquired the global industrial adhesives and synthetic polymers business of forbo holding ag for 370.0 million swiss francs or $ 404.7 million . inclusion of the acquired business increased net revenue by $ 423.4 million . divested our central america paints business for cash proceeds of $ 118.5 million . as part of this transaction , we recorded an after-tax gain of $ 51.1 million . acquired engent , inc. on september 10 , 2012 for $ 7.9 million . the global economic conditions showed little or no improvement in 2012. our total year organic sales growth , which we define as the combined variances from product pricing and sales volume , was 4.2 percent for 2012 compared to 2011. the inclusion of a 53 rd week in 2011 negatively impacted 2012 organic sales growth by approximately 2.0 percent . story_separator_special_tag the total plan rate of return assumption included an estimate of the impact of diversification and the plan expense . for 2013 , the expected long-term rate of return on assets will be 7.75 percent with an expected long-term rate of return on the target equities allocation of 8.5 percent and an expected long-term rate of return on target fixed-income allocation of 5.0 percent . a change of 0.5 percentage points for the expected return on assets assumption would impact u.s. net pension and other postretirement plan expense by approximately $ 1.9 million ( pre-tax ) . management , in conjunction with our external financial advisors , uses the actual historical rates of return of the asset categories to assess the reasonableness of the expected long-term rate of return on plan assets . the most 21 recent 10-year and 20-year historical equity returns are shown in the table below . our expected rate of return on our total portfolio is consistent with the historical patterns observed over longer time frames . replace_table_token_7_th ( * ) beginning in 2006 , our target allocation migrated from 100 percent equities to our current allocation of 60 percent equities and 40 percent fixed-income . the historical actual rate of return for the fixed income of 10.9 percent is since inception ( 6 years ) . the expected long-term rate of return on plan assets assumption for non-u.s. pension plans was a weighted-average of 6.08 percent in 2012. the expected long-term rate of return on plan assets assumption used in each non-u.s. plan is determined on a plan-by-plan basis for each local jurisdiction and is based on expected future returns for the investment mix of assets currently in the portfolio for that plan . management , in conjunction with our external financial advisors , develops expected rates of return for each plan , considers expected long-term returns for each asset category in the plan , reviews expectations for inflation for each local jurisdiction , and estimates the impact of active management of the plan 's assets . our largest non-u.s. pension plans are in germany and the united kingdom respectively . the expected long-term rate of return on plan assets for germany was 5.8 percent and the historical rate of return since inception ( 15 years ) for the total asset portfolio in germany was 3.7 percent . the expected rate of return on our german portfolio of 5.8 percent assumes that market returns will improve in the future to be more in line with historical market patterns observed over longer time frames . in addition , we have modified our investment strategy for the german plan to include a more diversified pool of equity and fixed-income investments and , therefore , we currently expect the performance of the plan assets to improve going forward . the expected long-term rate of return on plan assets for the united kingdom was 6.6 percent and the historical rate of return since inception ( 16 years ) for the total asset portfolio in the united kingdom was 6.5 percent . management , in conjunction with our external financial advisors , uses actual historical returns of the asset portfolio to assess the reasonableness of the expected rate of return for each plan . since both of these non-u.s. plans have been in existence for less than 20-years , the historical rate of return for each plan has been affected by a period of very poor market conditions by any longer term standards . the rates of return that have been earned by these plans over this shorter time is not what management or our external advisors expect in more normal economic times and over the long period these assets will be invested . during 2011 , we announced significant changes to our u.s. pension plan ( the plan ) . the changes included : benefits under the plan were locked-in using service and salary as of may 31 , 2011 , participants no longer earn benefits for future service and salary as they had in the past , affected participants receive a three percent increase to the locked-in benefit for every year they continue to work for us and we are making a retirement contribution of three percent of eligible compensation to the 401 ( k ) plan for those participants . these changes to the plan represented a plan curtailment as there is no longer a service cost component in the net periodic pension cost as all participants are considered inactive in the plan . the projected salary increase assumption is based on historic trends and comparisons to the external market . higher rates of increase result in higher pension expenses . as this rate is also a long-term expected rate , it is less likely to change on an annual basis . in the u.s. , we have used the rate of 5.0 percent for 2012 , 4.17 percent for 2011 and 4.19 percent for 2010. goodwill : goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a purchase business combination . goodwill is assigned to reporting units at the date the goodwill is initially recorded . once goodwill has been assigned to a reporting unit , it no longer retains its association with a particular acquisition , and all the activities within a reporting unit are available to support the value of goodwill . accounting standards require us to test goodwill for impairment annually or more often if circumstances or events indicate a change in the estimated fair value . 22 the goodwill impairment analysis is a two-step process . the first step used to identify potential impairment involves comparing each reporting unit 's estimated fair value to its carrying value , including goodwill . we use a discounted cash flow approach to estimate the fair value of our reporting units . our judgment is required in developing the assumptions for the discounted cash flow model .
| summary of cash flows cash flows from operating activities from continuing operations : replace_table_token_41_th net income including non-controlling interest was $ 125.9 million in 2012 , $ 89.0 million in 2011 and $ 70.4 million in 2010. depreciation and amortization expense totaled $ 57.4 million in 2012 compared to $ 39.1 million in 2011 and $ 38.8 million in 2010. the higher expense in 2012 was directly related to the acquired business . changes in net working capital ( trade receivables , inventory and trade payables ) accounted for a use of cash of $ 39.2 million , $ 20.8 million and $ 26.9 million in 2012 , 2011 and 2010 , respectively . following is an assessment of each of the net working capital components : trade receivables , netchanges in trade receivables resulted in a $ 17.3 million use of cash in 2012 as compared to $ 18.4 million use of cash in 2011 and a $ 13.8 million use of cash in 2010. the dso was 56 days at december 1 , 2012 , 53 days at december 3 , 2011 and 55 days at november 27 , 2010. inventorychanges in inventory resulted in a $ 17.1 million use of cash in 2012 as compared to a use of cash of $ 11.0 million in 2011 and a use of cash of $ 4.1 million in 2010. inventory days on hand were 53 days at the end of 2012 as compared to 41 days and 44 days at the end of 2011 and 2010 , respectively .
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( story_separator_special_tag the following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of china hgs real estate inc. for the fiscal years ended september 30 , 2014 and 2013 and should be read in conjunction with such financial statements and related notes included in this report . as used in this report , the terms “ company , ” “ we , ” “ our , ” “ us ” and “ hgs ” refer to china hgs real estate inc. and its subsidiaries . preliminary note regarding forward-looking statements . we make forward-looking statements in management 's discussion and analysis of financial condition and results of operations and elsewhere in this report based on the beliefs and assumptions of our management and on information currently available to us . forward-looking statements include information about our possible or assumed future results of operations which follow under the headings “ business and overview , ” “ liquidity and capital resources , ” and other statements throughout this report preceded by , followed by or that include the words “ believes , ” “ expects , ” “ anticipates , ” “ intends , ” “ plans , ” “ estimates ” or similar expressions . forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in these forward-looking statements , including the risks and uncertainties described below and other factors we describe from time to time in our periodic filings with the u.s. securities and exchange commission ( the “ sec ” ) . we therefore caution you not to rely unduly on any forward-looking statements . the forward-looking statements in this report speak only as of the date of this report , and we undertake no obligation to update or revise any forward-looking statement , whether as a result of new information , future developments or otherwise . these forward-looking statements include , among other things , statements relating to : our ability to sustain our project development our ability to obtain additional land use rights at favorable prices ; the market for real estate in tier 3 and 4 cities and counties ; our ability to obtain additional capital in future years to fund our planned expansion ; or economic , political , regulatory , legal and foreign exchange risks associated with our operations . our business overview we conduct substantially all of our business through shaanxi guangsha investment and development group co. , ltd , in hanzhong , shaanxi province . since the initiation of our business , we have been focused on expanding our business in certain tier 3 and tier 4 cities and counties in china . during 2013 , the introduction of the cooling measures , such as the “ national five ” , regulations caused a temporary halt in land and property price appreciation . with uncertainties in the prc government 's credit tightening policies , the market for real estate sales in 2013 and 2014 remained challenging . for fiscal 2014 , our sales , gross profit and net income were $ 124,295,928 , $ 38,810,620 and $ 32,444,757 respectively , representing an approximately 83.3 % , 47.7 % and 56 % increase in sales , gross profit and net income from fiscal 2013 , respectively . the significant increases in sales , gross profit and net income mainly resulted from sales of commercial units in the yang pearl garden project , the delivery of two municipal roads to the local government and revenues from the oriental garden project under the percentage completion method . 30 the company adopted the percentage of completion method in fiscal 2013 to account for real estate sales from large high rise residential projects with construction periods over 18 to 24 months . total revenue recognized under the percentage of completion method for fiscal 2014 was $ 99,567,574 ( 2013- $ 27,535,834 ) , representing 80.1 % of total revenue for the fiscal 2014 ( 2013- 41 % ) . the related costs of these real estate sales was $ 65,017,569 ( 2013- $ 17,803,039 ) for fiscal 2014 , representing 83.4 % ( 2013 - 48 % ) of the real estate costs for fiscal 2014. the gross profit before sales taxes from the percentage of completion method was $ 34,550,005 ( 2013- $ 9,732,795 ) , representing 74.5 % of the total gross profits before sales taxes for fiscal 2014. for fiscal 2014 , our average selling price ( “ asp ” ) for real estate projects ( excluding sales of parking spaces ) located in yang county was approximately $ 568.0 per square meter , an increase of 28.8 % from the asp of $ 441 per square meter for fiscal 2013 , due to more commercial units in the commercial street of yang pearl garden project being sold during fiscal 2014 with an asp of $ 814.3 per square meter . the asp of our hanzhong real estate projects ( excluding sales of parking spaces ) was approximately $ 763 per square meter , which represented a slight increase from the asp of $ 703 per square meter for fiscal 2013. market outlook our customers have a constant growth in their disposable income . with a lower housing price to family disposable income ratio and an increasing urbanization level , there is a growing demand for high quality residential housing . from this perspective , the company is positive about the outlook for the local real estate market in a long term . ine the meantime , the company is diversifying its revenue and developing more commercial and municipal projects . we intend to remain focused on our existing construction projects in hanzhong city and yang county , deeping our institutional sales network , enhancing our cost and operational synergies and improving cash flows and strengthening our balance sheet . story_separator_special_tag planning stage results of operations year ended september 30 , 2014 as compared to year ended september 30 , 2013 revenues the following is a breakdown of revenue for the years ended september 30 , 2014 and 2013 : replace_table_token_6_th percentage of completion method real estate sales for our long term real estate projects are recognized under percentage completion method in accordance with the provisions of asc 360-20-40d “ sale of condominium units ” . revenue and profit from the sales of long term development properties is recognized by the percentage of completion method on the sale of individual units when all the following criteria are met : a. construction is beyond a preliminary stage . b. the buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit or interest . c. sufficient units have already been sold to assure that the entire property will not revert to rental property . d. sales prices are collectible . e. aggregate sales proceeds and costs can be reasonably estimated . 33 if any of the above criteria is not met , proceeds shall be accounted for as deposits until the criteria are met . under the percentage of completion method , revenues from condominium units sold and related costs are recognized over the course of the construction period , based on the completion progress of a project . in relation to any project , revenue is determined by calculating the ratio of incurred costs , including land use rights costs and construction costs , to total estimated costs and applying that ratio to the contracted sales amounts . cost of sales is recognized by determining the ratio of contracted sales during the period to total estimated sales value , and applying that ratio to the incurred costs . current period amounts are calculated based on the difference between the life-to-date project totals and the previously recognized amounts . revenue recognized to date in excess of amounts received from customers is classified as current assets under cost and earnings in excess of billings , whose balance is $ 12,332,396 as of september 30 , 2014 ( 2013- $ 2,178,270 ) . amounts received from customers in excess of revenue recognized to date are classified as current liabilities under billings in excess of cost and earnings , whose balance is $ 2,960,452 as of september 30 , 2014 ( 2013- $ 5,109,758 ) . any changes in significant judgments and or estimates used in determining construction and development revenue could significantly change the timing or amount of construction and development revenue recognized . changes in total estimated project costs or losses , if any , are recognized in the period in which they are determined . changes of estimated gross profit margins related to revenue recognized under the percentage of completion method are made in the period in which circumstances requiring the revisions become known . for the year end september 30 , 2014 , real estate development projects with gross profits recognized in 2013 had changes in their estimated revenue and related gross profit margins . the company reduced its prior estimates related to selling prices and total estimated sales values which led to an increase in the recognized costs of sales under percentage completion revenue recognition approach . as a result of these changes in gross profit margins , net income for the year ended september 30 , 2014 decreased by $ 1,340,650 ( 2013 – $ nil ) or basic and diluted earnings per share for the year ended september 30 , 2014 decreased by $ 0.03 ( 2013- $ nil ) . full accrual method revenue from the sales of short term development properties , where the construction period is expected to be 18 months or less is recognized by the full accrual method at the time of the closing of an individual unit sale . this occurs when title to or possession of the property is transferred to the buyer . a sale is not considered consummated until ( a ) the parties are bound by the terms of a contract , ( b ) all consideration has been exchanged , ( c ) any permanent financing for which the seller is responsible has been arranged , ( d ) all conditions precedent to closing have been performed , ( e ) the seller does not have substantial continuing involvement with the property , and ( f ) the usual risks and rewards of ownership have been transferred to the buyer . further , the buyer 's initial and continuing investment is adequate to demonstrate a commitment to pay for the property . the company provides “ mortgage loan guarantees ” only with respect to buyers who make down-payments of 30 % -50 % of the total purchase price of the property . the period of the mortgage loan guarantee begins on the date the bank approves the buyer 's mortgage and we receive the loan proceeds in our bank account and ends on the date the “ certificate of ownership ” evidencing that title to the property has been transferred to the buyer . the procedures to obtain the certificate of ownership take six to twelve months ( the “ mortgage loan guarantee period ” ) . if , after investigation of the buyer 's income and other relevant factors , the bank decides not to grant the mortgage loan , our mortgage-loan based sales contract terminates and there will be no guarantee obligation . if , during the mortgage loan guarantee period , the buyer defaults on his or her monthly mortgage payment for three consecutive months , we are required to refund the loan proceeds back to the bank , although we have the right to keep the customer 's deposit and resell the property to a third party . once the certificate of property has been issued by the relevant government authority , our loan guarantee terminates .
| results of operations year ended september 30 , 2013 as compared to year ended september 30 , 2012 revenues the following is a breakdown of revenue for the years ended september 30 , 2013 and 2012 : replace_table_token_13_th revenue recognized under full accrual method the following table summarizes revenue recognized under full accrual method from sales of completed real estate projects for the years ended september 30 , 2013 and 2012 , respectively : replace_table_token_14_th the revenues are derived from the sale of the completed residential buildings , commercial front-stores and parking spaces in projects . revenues before sales tax increased by 113.6 % to approximately $ 40.3 million for the year ended september 30 , 2013 from approximately $ 18.9 million in the last year . the total gfa sold and delivered during fiscal 2013 was 72,811 square meters , representing an increase of 80.2 % from 40,397 square meters completed and sold for fiscal 2012. the asp for fiscal 2013 approximately amounted to $ 553 per square meter , increasing by 18.4 % from the asp of $ 467 per square meter in fiscal 2012 due to more commercial units being sold in fiscal 2013 . 40 a significant portion of revenue for fiscal 2013 was from the sales of commercial units in nandajie project ( mingzhu xinju ) project . on october 23 , 2012 , the company entered into a sales agreement to sell the remaining commercial units in nan dajie ( mingzhu xinju ) project with a total gfa of 4,545.88 square meters located in hanzhong city for a total contract amount of $ 5,441,450 ( rmb33,911,426 ) . the purchaser is related to one of the company 's concrete suppliers for our hanzhong city oriental pearl garden project and mingzhu beiyuan project . the purchaser 's payments are guaranteed by third parties .
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the company elected to adopt this update early , adopting it during the three months ended march 31 , 2014. there was no material impact on the company 's financial position or results of operations , except that the investment 129 great southern bancorp , inc. notes to consolidated financial statements december 31 , 2015 , 2014 and 2013 amortization expense which was previously included in other noninterest expense in the consolidated statements of income was moved from other noninterest expense to provision for income taxes in the consolidated statements of income . for the year ended story_separator_special_tag forward-looking statements when used in this annual report and in other documents filed or furnished by the company with the securities and exchange commission ( the `` sec '' ) , in the company 's press releases or other public or shareholder communications , and in oral statements made with the approval of an authorized executive officer , the words or phrases `` will likely result , '' `` are expected to , '' `` will continue , '' `` is anticipated , '' `` estimate , '' `` project , '' `` intends '' or similar expressions are intended to identify `` forward-looking statements '' within the meaning of the private securities litigation reform act of 1995. such statements are subject to certain risks and uncertainties , including , among other things , ( i ) non-interest expense reductions from great southern 's banking center consolidations might be less than anticipated and the costs of the consolidation and impairment of the value of the affected premises might be greater than expected ; ( ii ) expected revenues , cost savings , earnings accretion , synergies and other benefits from the fifth third bank branch acquisition and the company 's other merger and acquisition activities might not be realized within the anticipated time frames or at all , and costs or difficulties relating to integration matters , including but not limited to customer and employee retention , might be greater than expected ; ( iii ) changes in economic conditions , either nationally or in the company 's market areas ; ( iv ) fluctuations in interest rates ; ( v ) the risks of lending and investing activities , including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses ; ( vi ) the possibility of other-than-temporary impairments of securities held in the company 's securities portfolio ; ( vii ) the company 's ability to access cost-effective funding ; ( viii ) fluctuations in real estate values and both residential and commercial real estate market conditions ; ( ix ) demand for loans and deposits in the company 's market areas ; ( x ) legislative or regulatory changes that adversely affect the company 's business , including , without limitation , the dodd-frank wall street reform and consumer protection act and its implementing regulations , and the overdraft protection regulations and customers ' responses thereto ; ( xi ) monetary and fiscal policies of the board of governors of the federal reserve system ( the `` federal reserve board or the frb '' ) and the u.s. government and other governmental initiatives affecting the financial services industry ; ( xii ) results of examinations of the company and great southern by their regulators , including the possibility that the regulators may , among other things , require the company to increase its allowance for loan losses or to write-down assets ; ( xiii ) costs and effects of litigation , including settlements and judgments ; and ( xiv ) competition . the company wishes to advise readers that the factors listed above and other risks described from time to time in documents filed or furnished by the company with the sec could affect the company 's financial performance and could cause the company 's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements . the company does not undertake-and specifically declines any obligation- to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events . critical accounting policies , judgments and estimates the accounting and reporting policies of the company conform with accounting principles generally accepted in the united states and general practices within the financial services industry . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes . actual results could differ from those estimates . 72 allowance for loan losses and valuation of foreclosed assets the company believes that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies . the allowance for loan losses is calculated with the objective of maintaining an allowance level believed by management to be sufficient to absorb estimated loan losses . management 's determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors . however , this evaluation is inherently subjective as it requires material estimates of , among other things , expected default probabilities , loss once loans default , expected commitment usage , the amounts and timing of expected future cash flows on impaired loans , value of collateral , estimated losses , and general amounts for historical loss experience . the process also considers economic conditions , uncertainties in estimating losses and inherent risks in the loan portfolio . all of these factors may be susceptible to significant change . to the extent actual outcomes differ from management estimates , additional provisions for loan losses may be required which would adversely impact earnings in future periods . story_separator_special_tag for purposes of testing goodwill for impairment , the company used a market approach to value its reporting unit . the market approach applies a market multiple , based on observed purchase transactions for each reporting unit , to the metrics appropriate for the valuation of the operating unit . significant judgment is applied when goodwill is assessed for impairment . this judgment may include developing cash flow projections , selecting appropriate discount rates , identifying relevant market comparables and incorporating general economic and market conditions . based on the company 's goodwill impairment testing , management does not believe any of its goodwill or other intangible assets are impaired as of december 31 , 2015. while the company believes no impairment existed at december 31 , 2015 , different conditions or assumptions used to measure fair value of the reporting unit , or changes in cash flows or profitability , if significantly negative or unfavorable , could have a material adverse effect on the outcome of the company 's impairment evaluation in the future . current economic conditions changes in economic conditions could cause the values of assets and liabilities recorded in the financial statements to change rapidly , resulting in material future adjustments in asset values , the allowance for loan losses , or capital that could negatively impact the company 's ability to meet regulatory capital requirements and maintain sufficient liquidity . following the bursting of the housing bubble in mid-2007 , the united states entered into an economic recession . the economic downturn of 2008 was caused by a housing market correction and a subprime mortgage crisis . unemployment rose from 4.7 % in november 2007 to peak at 10 % in october 2009. the elevated unemployment levels negatively impacted consumer confidence , which had a detrimental impact on industry-wide performance nationally as well as in the company 's midwest market area . current economic conditions have improved considerably over the past three years as indicated by increasing consumer confidence levels , increased economic activity and a continued decline in unemployment levels . the national unemployment rate declined from 5.6 % as of december 2014 to 5.0 % as of december 2015. the economy added 292,000 jobs in december 2015. employment gains occurred in several industries , led by professional and business services , construction , health care and food services and drinking establishments . energy was the only significant industry suffering job losses . unemployment levels in our market areas have decreased or remained level over the past year in all states in which the company has offices . unemployment rates at december 31 , 2015 were : missouri at 4.4 % , arkansas at 4.8 % , kansas at 3.9 % , iowa at 3.4 % , nebraska at 2.9 % , minnesota at 3.5 % , oklahoma at 4.1 % and texas at 4.7 % . five of these eight states had unemployment rates amongst the top performers in the country . of the metropolitan areas in which great southern bank does business , the st. louis market area continues to carry the highest level of unemployment at 4.3 % . this rate compares favorably to the 5.6 % rate reported as of december 2014. the unemployment rate at 3.4 % for the springfield market area was below the national and state average for december 2015. metropolitan areas in iowa , nebraska and minnesota boasted unemployment levels among the lowest in the nation . sales of newly built , single-family homes were at a seasonally adjusted annual rate of 544,000 units in december 2015 , according to the u.s. department of housing and urban development and the u.s. census bureau . the median sales price of new houses sold in december 2015 was $ 288,900 with an average sales price of $ 346,400. the seasonally adjusted estimate of new houses for sale at the end of december 2015 was 237,000 , which represented a supply of 5.2 months at the current sales rate . according to realty trac , the nation 's foreclosure rate was 10 % lower than the same time last year . building permit activity continues to fluctuate by market area with residential builders constrained by tighter credit conditions for home buyers and a limited number of buildable lots . the performance of commercial real estate markets has improved throughout the company 's market areas as shown by increased real estate sales activity and financing of those activities . according to real estate services firm costar group , retail , office and industrial types of commercial real estate properties continue to improve in occupancy , absorption and rental income , both nationally and in our market areas . while current economic indicators show improvement nationally in employment , housing starts and prices , commercial real estate occupancy , absorption and rental income , our management will continue to closely monitor regional , national and global economic conditions , as these could significantly impact our market areas . 74 general the profitability of the company and , more specifically , the profitability of its primary subsidiary , the bank , depends primarily on its net interest income , as well as provisions for loan losses and the level of non-interest income and non-interest expense . net interest income is the difference between the interest income the bank earns on its loans and investment portfolio , and the interest it pays on interest-bearing liabilities , which consists mainly of interest paid on deposits and borrowings . net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on these balances . when interest-earning assets approximate or exceed interest-bearing liabilities , any positive interest rate spread will generate net interest income .
| general net income increased $ 9.8 million , or 29.1 % , during the year ended december 31 , 2014 , compared to the year ended december 31 , 2013. net income was $ 43.5 million for the year ended december 31 , 2014 compared to $ 33.7 million for the year ended december 31 , 2013. this increase was due to an increase in net interest income of $ 8.0 million , or 5.0 % , an increase in non-interest income of $ 9.4 million , or 177.2 % , and a decrease in the provision for loan losses of $ 13.2 million , or 76.1 % , partially offset by an increase in non-interest expense of $ 15.2 million , or 14.4 % , and an increase in provision for income taxes of $ 5.6 million , or 68.3 % . non-interest income for the year ended december 31 , 2014 included a gain recognized on business acquisition of $ 10.8 million . net income available to common shareholders was $ 43.0 million for the year ended december 31 , 2014 compared to $ 33.2 million for the year ended december 31 , 2013. total interest income total interest income increased $ 4.6 million , or 2.6 % , during the year ended december 31 , 2014 compared to the year ended december 31 , 2013. the increase was due to an $ 8.7 million , or 5.3 % , increase in interest income on loans , partially offset by a $ 4.1 million , or 27.5 % , decrease in interest income on investments and other interest-earning assets . interest income on loans increased in 2014 , due to higher average balances on loans , partially offset by lower average rates of interest . interest income from investment securities and other interest-earning assets decreased during 2014 compared to 2013 primarily due to lower average balances .
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a 0.25 % change in the discount rate assumption would change the pbo by approximately $ 25 million and the net pension credit for 2017 would change by approximately $ 0.1 million . a 0.25 % change in the level of price inflation assumption would change the pbo by approximately $ 18 million and the net story_separator_special_tag this discussion should be read in conjunction with our consolidated financial statements and the notes thereto . executive overview in 2017 , our sales grew in line with our expectations , as we delivered on our strategy to grow all of our strategic business units . sales in fuel specialties and performance chemicals reflected the strength of our product portfolio and research and development pipeline in these markets . our oilfield services segment experienced strong growth , reflecting the increase in customer activity , as the market recovered . our octane additives segment performance was in line with the final stages of transition to unleaded gasoline in the automotive market . our avtel product line , producing tel for avgas 100ll for piston engine aircraft , is included in our fuel specialties segment . we anticipate that this product line will decline when an alternative to avgas 100ll is proven , and a deliverable transition plan is developed . during the year , we completed the integration of the business acquired from huntsman at the end of 2016. from the first quarter of 2018 , performance chemicals will be reported as a single business in our commentary , and we will no longer report the detailed split between the acquired and heritage businesses . critical accounting estimates note 2 of the notes to the consolidated financial statements includes a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements . business combinations the acquisition method of accounting requires that we recognize the assets acquired and liabilities assumed at their acquisition date fair values . goodwill is measured as the excess of consideration transferred over the acquisition date net fair values of the assets acquired and the liabilities assumed . the measurement of the fair values of assets acquired and liabilities assumed requires considerable judgment . although independent appraisals may be used to assist in the determination of the fair values of certain assets and liabilities , those determinations are usually based on significant estimates provided by management , such as forecast revenue or profit . in determining the fair value of intangible assets , an income approach is generally used and may incorporate the use of a discounted cash flow method . in applying the discounted cash flow method , the estimated future cash flows and residual values for each intangible asset are discounted to a present value using a discount rate appropriate to the business being 26 acquired . these cash flow projections are based on management 's estimates of economic and market conditions including revenue growth rates , operating margins , capital expenditures and working capital requirements . while we use our best estimates and assumptions as part of the process to value assets acquired and liabilities assumed at the acquisition date and contingent consideration at each balance sheet reporting date , our estimates are inherently uncertain and subject to refinement . during the measurement period , which occurs before finalization of the purchase price allocation , changes in assumptions and estimates based on new information that was not previously available , that result in adjustments to the fair values of assets acquired and liabilities assumed will have a corresponding offset to goodwill . subsequent adjustments will impact our consolidated statements of income . environmental liabilities we are subject to environmental laws in the countries in which we conduct business . our principal site giving rise to environmental remediation liabilities is the octane additives manufacturing site at ellesmere port in the united kingdom . there are also environmental remediation liabilities on a much smaller scale in respect of our other manufacturing sites in the u.s. and europe . at ellesmere port there is a continuing asset retirement program related to certain manufacturing units that have been closed . remediation provisions at december 31 , 2017 amounted to $ 46.1 million and relate principally to our ellesmere port site in the united kingdom . we recognize environmental liabilities when they are probable and costs can be reasonably estimated , and asset retirement obligations when there is a legal obligation and costs can be reasonably estimated . the company has to anticipate the program of work required and the associated future expected costs , and comply with environmental legislation in the countries in which it operates or has operated in . the company views the costs of vacating our ellesmere port site as contingent upon if and when it vacates the site because there is no present intention to do so . pensions the company maintains a defined benefit pension plan covering a number of its current and former employees in the united kingdom . the company also has other much smaller pension arrangements in the u.s. and overseas , but the obligations under those plans are not material . the united kingdom plan is closed to future service accrual , but has a large number of deferred and current pensioners . movements in the underlying plan asset value and projected benefit obligation ( pbo ) are dependent on actual return on investments as well as our assumptions in respect of the discount rate , annual member mortality rates , future return on assets and future inflation . a change in any one of these assumptions could impact the plan asset value , pbo and pension charge recognized in the income statement . such changes could adversely impact our results of operations and financial position . for example , a 0.25 % change in the discount rate 27 assumption would change the pbo by approximately $ 25 million while the net pension credit for 2018 would change by approximately $ 0.1 million . story_separator_special_tag these types of events or changes in circumstances could include , but are not limited to : introduction of new products with enhanced features by our competitors ; loss of , material reduction in purchases by , or non-renewal of a contract by a significant customer ; prolonged decline in business or consumer spending ; sharp and unexpected rise in raw material , chemical or energy costs ; and new laws or regulations inhibiting the development , manufacture , distribution or sale of our products . in order to facilitate this testing the company groups together assets at the lowest possible level for which cash flow information is available . undiscounted future cash flows expected to result from the asset groups are compared with the carrying value of the assets and , if such cash flows are lower , an impairment loss may be recognized . the amount of the impairment loss is the difference between the fair value and the carrying value of the assets . fair values are determined using post-tax cash flows discounted at the company 's weighted average cost of capital . if events occur or circumstances change it may cause a reduction in periods over which these long-lived assets are amortized or depreciated , or result in a non-cash impairment of a portion of their carrying value . a reduction in amortization or depreciation periods would have no effect on cash flows . 30 story_separator_special_tag style= '' margin-top:0px ; margin-bottom:0px '' > pension credit : is non-cash , and was a $ 4.4 million net credit in 2017 compared to a $ 6.7 million net credit in 2016 primarily driven by higher amortization of actuarial losses . corporate costs : the year on year decrease of $ 6.0 million related to $ 4.4 million non-recurring acquisition-related costs in the prior year for our huntsman business , partly offset by $ 1.9 million of integration related costs in the current year ; together with lower performance based personnel-related compensation and the benefit of the weaker british pound sterling against the u.s. dollar for our ellesmere port cost base over the year . adjustment to fair value of contingent consideration : in the prior year there was a contingent consideration credit of $ 9.4 million related to an acquisition in 2014. loss on disposal of subsidiary : the loss of $ 0.9 million relates to an indemnity claim in relation to residual testing in the aroma chemicals business which was sold in 2015. foreign exchange loss on liquidation of subsidiary : the $ 1.8 million loss relates to the reclassification of historic foreign exchange translations of net assets from accumulated other comprehensive losses , for our captive insurance company which was liquidated in the first quarter of 2017 . 34 other net income/ ( expense ) : other net income of $ 6.6 million related to $ 7.5 million of gains on translation of net balances denominated in non-functional currencies mainly in our european businesses , partly offset by losses of $ 0.9 million on foreign currency forward exchange contracts . in the prior year , other net income of $ 0.9 million primarily related to $ 4.4 million net gains on foreign currency forward contracts , partly offset by losses of $ 3.5 million on translation of net assets denominated in non-functional currencies in our european businesses . interest expense , net : was $ 8.2 million in 2017 compared to $ 3.2 million in 2016 , driven by the additional term loan related to the huntsman acquisition , increased working capital requirements funded by our credit facility and the recent rise in libor impacting our revolving credit facility borrowing . income taxes : the effective tax rate was 51.8 % and 21.1 % in 2017 and 2016 , respectively . the adjusted effective tax rate , once adjusted for the items set out in the following table , was 20.2 % in 2017 compared with 22.4 % in 2016. the company believes that this adjusted effective tax rate , a non-gaap financial measure , provides useful information to investors and may assist them in evaluating the company 's underlying performance and identifying operating trends . in addition , management uses this non-gaap financial measure internally to evaluate the performance of the company 's operations and for planning and forecasting in subsequent periods . replace_table_token_13_th the most significant factor impacting our effective rate is the recognized implications of the tax reform act . as a result of the act , we accrued a provisional estimate of the mandatory 35 transition tax on our accumulated earnings as of december 31 , 2017 , resulting in an increase to income tax expense of $ 47.7 million . in addition , our u.s. deferred tax assets and liabilities were re-measured from 35 % to 21 % at the same date , which resulted in $ 7.1 million of deferred income tax benefit . in addition to those mentioned above , the mix of taxable profits in the different geographical jurisdictions in which the group operates continues to have a significant positive impact on the effective tax rate . the foreign tax rate differential arising from profits being earned in foreign jurisdictions with lower tax rates in 2017 was $ 17.5 million ( 2016 $ 17.1 million ) . in 2017 , the company 's income tax expense benefited to a greater degree from a proportion of its overall profits arising in switzerland than in 2016. this resulted in an $ 8.2 million benefit in switzerland ( 2016 $ 7.8 million ) . in addition , there was an $ 8.3 million benefit in relation to the united kingdom ( 2016 $ 8.4 million ) , a $ 0.7 million benefit in relation to germany ( 2016 $ 0.5 million ) , and a $ 0.3 million benefit in other jurisdictions ( 2016 $ 0.3 million benefit ) . foreign income inclusions arise each year from certain types of income earned overseas being taxable under u.s. tax regulations .
| results of operations the following table provides operating income by reporting segment : replace_table_token_9_th 31 results of operations fiscal 2017 compared to fiscal 2016 : replace_table_token_10_th fuel specialties net sales : the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate : replace_table_token_11_th 32 volumes in the americas were higher as a result of increased demand following a slower than normal end to 2016. price and product mix in the americas was adversely impacted by increased sales of lower margin products . volumes in emea and aspac decreased due to customer reformulation to our new technologies . price and product mix in emea and aspac benefited from increased sales of higher margin products . avtel volumes were lower than the prior year due to variations in the timing and level of demand from customers , together with a favorable price mix . emea benefited from favorable exchange rate movements year over year , driven by a strengthening of the european union euro against the u.s. dollar . gross margin : the year on year decrease of 0.7 percentage points was adversely impacted by lower sales of higher margin products compared to a strong prior year , partly offset by the benefit of a stronger european union euro versus the u.s. dollar towards the end of the year . operating expenses : the year on year increase of $ 5.3 million was driven by $ 3.4 million higher selling and administrative expenses and $ 1.9 million higher research and development expenses . higher performance based personnel-related compensation has increased expenses year on year .
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for public companies , the amendments are effective for annual reporting periods beginning after december 15 , 2019 , including interim periods within those annual periods . early adoption is permitted . the company is currently assessing the impact that adopting this new accounting guidance will have on its financial statements and footnote disclosures . 4. capitalization as of december 31 , 2019 , the company had authorized 100,000,000 shares of common stock , $ 0.0001 par value per share , of which 47,658,361 shares were issued and outstanding . in addition , as of december 31 , 2019 , the company had authorized 25,000,000 shares of preferred stock story_separator_special_tag overview we are a clinical stage biopharmaceutical company , focused on the development and commercialization of novel therapeutics and innovative approaches aimed at intercepting and preventing immune-mediated diseases . since our inception , we have devoted substantially all of our efforts to business planning , research and development , recruiting management and technical staff , acquiring operating assets partnering and raising capital . we have not yet commenced any revenue-generating operations , do not have any positive cash flows from operations and we will need to raise additional capital to finance our operations . our business is subject to significant risks and uncertainties and we will be dependent on raising substantial additional capital before we become profitable and we may never achieve profitability . we have not generated any revenue to date and through december 31 , 2019 , we had an accumulated deficit of $ 79.1 million . we have financed our operations through a private offering of series a convertible redeemable preferred stock in april 2017 , our initial public offering , or ipo in july 2018 and our underwritten public offering and concurrent private placement in september 2019. in april 2017 , we completed our private placement of series a convertible redeemable preferred stock . we issued an aggregate 11,381,999 shares of series a convertible redeemable preferred stock at $ 2.50 per share . we received net proceeds of $ 26.7 million . in july 2018 , we issued and sold an aggregate of 15,969,563 shares of common stock in our ipo at a public offering price of $ 4.00 per share . in connection with the ipo , we issued to mdb , the underwriter in the ipo , and its designees warrants to purchase 1,596,956 shares of common stock at an exercise price of $ 5.00 per share . we received net proceeds from the ipo of $ 59.3 million , after deducting underwriting discounts and commissions of approximately $ 3.7 million and other offering expenses of approximately $ 0.8 million . upon the closing of the ipo , all of our shares of series a convertible redeemable preferred stock outstanding at the time of the ipo were automatically converted into 11,381,999 shares of common stock . in addition , the warrants issued in connection with the series a convertible redeemable preferred stock also converted to warrants for the purchase of 558,740 shares of our common stock . in september 2019 , we completed an underwritten public offering in which we sold 5,750,000 shares of common stock at a public offering price of $ 8.00 per share . the 5,750,000 shares sold included the full exercise of the underwriters ' option to purchase 750,000 shares at a price of $ 8.00 per share . concurrent with the underwritten public offering , we sold 2,500,000 shares of common stock to amgen , inc. at the public offering price of $ 8.00 per share in a private placement , pursuant to the terms of our license and collaboration agreement with amgen inc , dated as of november 5 , 2018. aggregate net proceeds from the underwritten public offering and the concurrent private placement were $ 62.7 million , net of approximately $ 2.8 million in underwriting discounts and commissions and other offering expenses of $ 0.5 million . we expect that over the next several years we will continue to incur losses from operations as we increase our expenditures in research and development in connection with our planned bla submission and our commercialization efforts for prv-031 in the at-risk indication , as well as our ongoing and planned clinical trials and other development activities . if adequate funds are not available to us on a timely basis , or at all , we may be required to terminate or delay certain development activities . 75 our focus and pipeline inflammation is a natural consequence of most infections as it is the immune system 's first response to invading pathogens in the event of injury or acute illness . most of the time , this response is beneficial and well-controlled ; helping to repair tissue damage and clear pathogens from the body . in addition to directly damaging tissues and organs , an infection can sometimes result in the excessive release of toxic immune mediators leading to a potentially life-threatening acute pathological immune response . when patients have the requisite genetic predisposition , infections can also trigger chronic autoimmune responses that persist and progress long after the original insult has subsided . these sustained responses have been linked to an increased susceptibility to chronic debilitating and potentially life-threatening diseases like inflammatory bowel disease , diabetes , cancer , and certain neurological disorders . our “ predict ” and “ preempt ” therapeutic approach is to intercept the underlying pathological immune and inflammatory responses in susceptible individuals . our pipeline includes : ● prv-031 : a humanized , anti-cd3 mab for the interception of t1d in pediatric patients with newly-diagnosed t1d and for delaying and or preventing disease progression in subjects at risk of developing clinical stage t1d . prv-031 has been designated by the fda as orphan drug for the treatment of newly-diagnosed t1d . story_separator_special_tag general and administrative expenses general and administrative expenses consist primarily of salaries , benefits and other related costs , including stock-based compensation , for our personnel serving in our executive , business development and finance and accounting functions . general and administrative expenses also include professional fees for legal , including patent-related expenses , consulting , insurance , board of director fees , tax and accounting services . we anticipate that we will incur increased general and administrative expenses related to audit , legal , regulatory , and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance premiums , and investor relations costs associated with being a public company . in addition , we expect that our general and administrative expenses will increase in the future as a result of the build out of our commercial organization . interest income interest income consists of interest income earned on our cash , cash equivalents and marketable securities . change in fair value of warrant liability change in fair value of warrant liability represents the re-measurement of liability classified warrants using the black-scholes option-pricing model at each financial reporting period . the fair value was affected by changes in inputs to the model including the fair value of our series a convertible redeemable preferred stock , expected stock price volatility , the estimated term until exercise , and the risk-free interest rate . upon the completion of the ipo in july 2018 , the warrants issued in connection with the series a convertible redeemable preferred stock converted to warrants for the purchase of 558,740 shares of our common stock . the liability associated with these warrants was revalued just prior to the completion of the ipo , with the change in the fair value of the warrant liability charged to earnings . the warrant liability was then reclassified to additional paid-in capital upon the completion of the ipo in july 2018 , as the warrants no longer contain redemption provisions outside our control . 78 story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0 ; text-align : justify ; text-indent : 0.5in '' > comparison of years ended december 31 , 2018 and 2017 replace_table_token_8_th research and development expenses research and development expenses were $ 22.6 million for the year ended december 31 , 2018 , an increase of $ 14.9 million , compared to $ 7.7 million for the year ended december 31 , 2017. research and development expenses for the year ended december 31 , 2018 included external clinical development expenses of $ 10.7 million for prv-6527 , prv-300 and prv-031 , development costs of $ 4.1 million for prv-101 , non-cash product acquisition costs of $ 4.0 million , which represented the fair value of warrants issued in connection with the acquisition of prv-031 and prv-3279 in may 2018 , and internal personnel costs , including stock-based compensation , of $ 2.9 million . research and development expenses during the year ended december 31 , 2017 included non-cash product acquisition costs of $ 3.4 million , which represented the fair value of shares of common stock issued in connection with the vactech license agreement for prv-101 in april 2017 , $ 3.1 million in external clinical development expenses primarily related to prv-6527 and prv-300 , and $ 1.1 million of internal clinical development costs consisting mostly of compensation and related expenses , including stock-based compensation . general and administrative expenses general and administrative expenses were $ 4.2 million for the year ended december 31 , 2018 , an increase of $ 2.7 million , compared to $ 1.5 million for the year ended december 31 , 2017. general and administrative expenses for the year ended december 31 , 2018 primarily included $ 1.6 million in personnel costs , including stock-based compensation , $ 1.5 million in professional fees and legal expenses and $ 0.7 million in insurance and other costs associated with being a public company . general and administrative expenses were $ 1.5 million for the year ended december 31 , 2017 and were primarily comprised of $ 0.7 million in personnel costs , including stock-based compensation , and $ 0.6 million in professional fees and legal expenses . 80 change in fair value of warrant liability change in fair value of warrant liability was a loss of approximately $ 0.5 million during the year ended december 31 , 2018 , compared to a loss of $ 0.1 million during the year ended december 31 , 2017. this loss represents the change in fair value of our warrant liability using a black-scholes option-pricing model with updated assumptions as of july 18 , 2018 , the date just prior to the completion of our ipo , and was primarily impacted by a change in the fair value of our series a convertible redeemable preferred stock . upon the completion of the ipo in july 2018 , the warrants issued in connection with the series a convertible redeemable preferred stock converted to warrants for the purchase of 558,740 shares of our common stock . the warrant liability was then reclassified to additional paid-in capital upon the completion of the ipo in july 2018 , as the warrants no longer contain redemption provisions outside our control . interest income interest income was $ 0.7 million during the year ended december 31 , 2018 compared to $ 0.1 million during the year ended december 31 , 2017. the increase in interest income in 2018 related primarily to an increase in average cash and cash equivalents balances that resulted from the net proceeds from our ipo in july 2018. income tax benefit we recorded an income tax benefit of $ 0.2 million during the year ended december 31 , 2018 , which related to the proceeds from the sale of certain of our prior year new jersey net operating losses we did not record any income tax benefit or provision during the year ended december 31 , 2017. liquidity and capital resources overview there is considerable time
| results of operations comparison of years ended december 31 , 2019 and 2018 replace_table_token_7_th research and development expenses research and development expenses were $ 36.4 million for the year ended december 31 , 2019 , an increase of $ 13.8 million , compared to $ 22.6 million for the year ended december 31 , 2018. research and development expenses for the year ended december 31 , 2019 primarily included external clinical development expenses of $ 22.6 million for prv-031 , prv-6527 , prv-300 , and prv-3279 , development costs of $ 6.4 million for prv-101 and internal personnel costs , including stock-based compensation , of $ 5.1 million . research and development expenses for the year ended december 31 , 2018 included external clinical development expenses of $ 10.7 million for prv-6527 , prv-300 and prv-031 , development costs of $ 4.1 million for prv-101 , non-cash product acquisition costs of $ 4.0 million , which represented the fair value of warrants issued in connection with the acquisition of prv-031 and prv-3279 in may 2018 , and internal personnel costs , including stock-based compensation , of $ 2.9 million . general and administrative expenses general and administrative expenses were $ 8.0 million for the year ended december 31 , 2019 , an increase of $ 3.8 million , compared to $ 4.2 million for the year ended december 31 , 2018. general and administrative expenses for the year ended december 31 , 2019 primarily included $ 2.8 million in personnel costs , including stock-based compensation , $ 2.7 million in professional fees and legal expenses and $ 2.0 million in insurance and other costs associated with being a public company .
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pilgrim 's fresh chicken products consist of refrigerated ( non-frozen ) whole chickens , whole cut-up chickens and selected chicken parts that are either marinated or non-marinated . the company 's prepared chicken products include fully cooked , ready-to-cook and individually frozen chicken parts , strips , nuggets and patties , some of which are either breaded or non-breaded and either marinated or non-marinated . we market our balanced portfolio of fresh , prepared and value-added chicken products to a diverse set of over 5,000 customers across the u.s. , mexico and in approximately 95 other countries , with no single one accounting for more than 10 % of total sales . we have become a valuable partner to our customers and a recognized industry leader by consistently providing high-quality products and services designed to meet their needs and enhance their business . our sales efforts are largely targeted towards the foodservice industry , principally chain restaurants and food processors such as chick-fil-a® and yum ! brands® , distributors such as us foods and sysco® and retail customers , including grocery store chains and wholesale clubs such as kroger® , wal-mart® , costco® , publix® and sam 's club® . as a vertically integrated company , we control every phase of the production process , which helps us better manage food safety and quality , as well as more effectively control margins and improve customer service . we operate feed mills , hatcheries , processing plants and distribution centers in 12 u.s. states , puerto rico and mexico . our plants are strategically located to ensure that customers timely receive fresh products . with our global network of approximately 3,750 growers , 28 feed mills , 36 hatcheries , 27 processing plants , five prepared foods cook plants , 14 distribution centers , eight rendering facilities and three pet food plants , we believe we are well positioned to supply the growing demand for our products . we are one of the largest , and we believe one of the most efficient , producers and sellers of chicken in mexico . our presence in mexico provides access to a market with growing demand and has enabled us to leverage our operational strengths within the region . the market for chicken products in mexico is still developing with most sales attributed to fresh , commodity-oriented , market price-based business . we believe our mexico business is well positioned to continue benefiting from these trends in the mexican consumer market . additionally , we are an important player in the live market , which accounted for approximately 33 % of the industry 's chicken sales in mexico in 2014. pilgrim 's has approximately 35,000 employees and has the capacity to process more than 34.7 million birds per week for a total of more than 10.2 billion pounds of live chicken annually . in 2014 , we produced 7.5 billion pounds of chicken products , generating approximately $ 8.6 billion in net revenues and approximately $ 711.6 million in net income attributable to pilgrim 's . we operate on a 52/53-week fiscal year that ends on the sunday falling on or before december 31. the reader should assume any reference we make to a particular year ( for example , 2014 ) in this report applies to our fiscal year and not the calendar year . 28 executive summary we reported net income attributable to pilgrim 's pride corporation of $ 711.6 million , or $ 2.74 per diluted common share , for 2014. these operating results included gross profit of $ 1.4 billion . during 2014 , we generated $ 1.1 billion of cash from operations . market prices for feed ingredients remain volatile . consequently , there can be no assurance that our feed ingredients prices will not increase materially and that such increases would not negatively impact our financial position , results of operations and cash flow . the following table compares the highest and lowest prices reached on nearby futures for one bushel of corn and one ton of soybean meal during the current year and previous two years : replace_table_token_10_th we purchase derivative financial instruments , specifically exchange-traded futures and options , in an attempt to mitigate price risk related to our anticipated consumption of commodity inputs such as corn , soybean meal , sorghum , wheat , soybean oil and natural gas . we will sometimes take a short position on a derivative instrument to minimize the impact of a commodity 's price volatility on our operating results . we will also occasionally purchase derivative financial instruments in an attempt to mitigate currency exchange rate exposure related to the financial statements of our mexico operations that are denominated in mexican pesos . we do not designate derivative financial instruments that we purchase to mitigate commodity purchase or currency exchange rate exposures as cash flow hedges ; therefore , we recognize changes in the fair value of these derivative financial instruments immediately in earnings . we recognized $ 16.1 million , $ 25.1 million and $ 8.3 million in net gains related to changes in the fair value of derivative financial instruments during 2014 , 2013 and 2012. although changes in the market price paid for feed ingredients impact cash outlays at the time we purchase the ingredients , such changes do not immediately impact cost of sales . the cost of feed ingredients is recognized in cost of sales , on a first in first-out basis , at the same time that the sales of the chickens that consume the feed grains are recognized . story_separator_special_tag for additional information regarding the u.s. credit facility , see “ - liquidity and capital resources - debt obligations - u.s. credit facility. ” special cash dividend . on january 14 , 2015 , we declared a special cash dividend of $ 5.77 per share with a total payment amount of approximately $ 1.5 billion based on the number of shares outstanding . the special cash dividend is payable on february 17 , 2015 , to stockholders of record as of january 30 , 2015. we anticipate that proceeds from certain borrowings under the u.s. credit facility , along with cash on hand , will be used to pay the special cash dividend to our stockholders on february 17 , 2015. for additional information , see “ note 13. stockholders ' equity - special cash dividend ” of our consolidated financial statements included in this annual report . 30 business segment and geographic reporting we operate in one reportable business segment , as a producer and seller of chicken products we either produce or purchase for resale in the u.s. , puerto rico and mexico . we conduct separate operations in the u.s. , puerto rico and mexico ; however , for geographic reporting purposes , we include puerto rico within our u.s. operations . corporate expenses are allocated to mexico based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the u.s. for additional information , see “ note 18. business segment and geographic reporting ” of our consolidated financial statements included in this annual report . 31 story_separator_special_tag million decrease in brokerage expenses and a $ 1.0 million decrease in contract labor expenses . other factors affecting sg & a expense were individually immaterial . ( b ) sg & a expense incurred by the mexico operations during 2014 decreased $ 1.5 million , or 7.2 % , from sg & a expense incurred by the mexico operations during 2013 primarily because of a $ 2.7 million decrease in contract labor expenses , a $ 2.0 million decrease in government fees and a $ 1.1 million decrease in management fees charged by the u.s. operations that were partially offset by a $ 2.8 million increase in employee wages and benefits , a $ 0.6 million loss recognized on asset disposals , a $ 0.4 million increase in marketing expenses and a $ 0.4 million increase in legal services expenses . other factors affecting sg & a expense were individually immaterial . ( c ) administrative restructuring charges incurred during 2014 decreased $ 3.4 million , or 59.6 % , from administrative restructuring charges incurred during 2013. during 2014 , we incurred administrative restructuring charges composed of ( i ) live operations rationalization costs of $ 0.9 million , ( ii ) employee-related costs of $ 0.6 million , ( iii ) other exit or disposal costs of $ 0.4 million and ( iv ) inventory valuation costs of $ 0.3 million . interest expense . consolidated interest expense decreased 5.6 % to $ 82.1 million in 2014 from $ 87.0 million in 2013 primarily because of decreased average borrowings of $ 526.7 million in 2014 compared to $ 990.5 million in 2013 and a decrease in the weighted average interest rate to 6.45 % in 2014 from 7.10 % in 2013. as a percent of net sales , interest expense in 2014 and 2013 was 0.96 % and 1.03 % . 33 income taxes . our consolidated income tax expense in 2014 was $ 390.9 million , compared to income tax expense of $ 24.2 million in 2013. the income tax expense in 2014 resulted primarily from an increase in income partially offset by decreases in valuation allowance and reserves for unrecognized tax benefits during 2013. we expect a future effective tax rate that is comparative to 2014 . 2013 compared to 2012 net sales . net sales for 2013 increased $ 289.8 million , or 3.6 % , from 2012. the following table provides additional information regarding net sales : replace_table_token_19_th ( a ) u.s. sales generated in 2013 increased $ 250.7 million , or 3.5 % , from u.s. sales generated in 2012 , despite a decrease in the number of weeks included in the fiscal year from 53 in 2012 to 52 in 2013 , primarily because of an increase in the net revenue per pound sold that was partially offset by a decrease in pounds sold . increased net revenue per pound sold , which resulted primarily from an increase in market prices due to continued healthy demand for chicken products in combination with constrained supply , contributed $ 484.3 million , or 6.7 percentage points , to the revenue increase . a decrease in pounds sold partially offset the increase in revenue per pound sold by $ 233.6 million , or 3.2 percentage points . included in u.s. sales generated during 2013 and 2012 were sales to jbs usa , llc totaling $ 61.9 million and $ 206.7 million , respectively . ( b ) mexico sales generated in 2013 increased $ 39.0 million , or 4.5 % , from mexico sales generated in 2012 , despite a decrease in the number of weeks included in the respective fiscal years , primarily because of the favorable impact of foreign currency translation and an increase in market prices that were partially offset by a decrease in unit sales volume . the favorable impact of foreign currency translation contributed $ 28.3 million , or 3.2 percentage points , to the revenue increase . an increase in market prices contributed $ 19.8 million , or 2.3 percentage points to the revenue increase . a decrease in pounds sold partially offset the favorable impact of foreign currency translation and the increase in market prices by $ 9.1 million , or 1.0 percentage points , and resulted primarily from the lack of broiler eggs following the h7n3 influenza outbreak in mexico in late 2012 and early 2013. gross profit .
| results of operations 2014 compared to 2013 net sales . net sales for 2014 increased $ 172.2 million , or 2.0 % , from 2013. the following table provides additional information regarding net sales : replace_table_token_11_th ( a ) u.s. sales generated in 2014 increased $ 146.8 million , or 2.0 % , from u.s. sales generated in 2013 , primarily because of an increase in the net revenue per pound sold that was partially offset by a decrease in pounds sold . increased net revenue per pound sold , which resulted primarily from an increase in market prices due to continued healthy demand for chicken products in combination with constrained supply , contributed $ 217.8 million , or 2.9 percentage points , to the revenue increase . a decrease in pounds sold partially offset the increase in revenue per pound sold by $ 70.8 million , or 0.9 percentage points . included in u.s. sales generated during 2014 and 2013 were sales to jbs usa , llc totaling $ 39.7 million and $ 61.9 million , respectively . ( b ) mexico sales generated in 2014 increased $ 25.4 million , or 2.8 % , from mexico sales generated in 2013 , primarily because of an increase in the net revenue per pound sold and an increase in sales volume partially offset by the impact of foreign currency translation . the increase in net revenue per pound contributed $ 42.4 million , or 4.7 % , to the increase in sales . the increase in volume contributed $ 24.2 million , or 2.7 percentage points , to the increase in sales , partially offset by the unfavorable impact of foreign currency translation contributed $ 41.2 million , or 4.4 percentage points , to the revenue decrease . gross profit .
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2013-11 require an entity to present an unrecognized tax benefit story_separator_special_tag forward-looking statements this report contains forward-looking statements concerning , among other things , the economic and business environment in our service area and elsewhere , credit quality and other financial and business matters in future periods . our forward-looking statements are based on numerous assumptions , any of which could prove to be inaccurate and actual results may differ materially from those projected because of a variety of risks and uncertainties , including , but not limited to : 1 ) general economic conditions either nationally , internationally , or locally may be different than expected , and particularly , any event that negatively impacts the tourism industry in hawaii ; 2 ) unanticipated changes in the securities markets , public debt markets , and other capital markets in the u.s. and internationally ; 3 ) competitive pressures in the markets for financial services and products ; 4 ) the impact of recent legislative and regulatory initiatives , particularly the dodd-frank wall street reform and consumer protection act ( the `` dodd-frank act '' ) ; 5 ) changes in fiscal and monetary policies of the markets in which we operate ; 6 ) the increased cost of maintaining or the company 's ability to maintain adequate liquidity and capital , based on the requirements adopted by the basel committee on banking supervision and u.s. regulators ; 7 ) actual or alleged conduct which could harm our reputation ; 8 ) changes in accounting standards ; 9 ) changes in tax laws or regulations or the interpretation of such laws and regulations ; 10 ) changes in our credit quality or risk profile that may increase or decrease the required level of our reserve for credit losses ; 11 ) changes in market interest rates that may affect credit markets and our ability to maintain our net interest margin ; 12 ) the impact of litigation and regulatory investigations of the company , including costs , expenses , settlements , and judgments ; 13 ) any failure in or breach of our operational systems , information systems or infrastructure , or those of our merchants , third party vendors and other service providers ; 14 ) any interruption or breach of security of our information systems resulting in failures or disruptions in customer account management , general ledger processing , and loan or deposit systems ; 15 ) changes to the amount and timing of proposed common stock repurchases ; and 16 ) natural disasters , public unrest or adverse weather , public health , and other conditions impacting us and our customers ' operations . a detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included under the section entitled `` risk factors '' in part i of this report . words such as `` believes , '' `` anticipates , '' `` expects , '' `` intends , '' `` targeted , '' and similar expressions are intended to identify forward-looking statements but are not exclusive means of identifying such statements . we undertake no obligation to update forward-looking statements to reflect later events or circumstances . critical accounting policies our consolidated financial statements were prepared in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) and follow general practices within the industries in which we operate . the most significant accounting policies we follow are presented in note 1 to the consolidated financial statements . application of these principles requires us to make estimates , assumptions , and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . most accounting policies are not considered by management to be critical accounting policies . several factors are considered in determining whether or not a policy is critical in the preparation of the consolidated financial statements . these factors include among other things , whether the policy requires management to make difficult , subjective , and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions . the accounting policies which we believe to be most critical in preparing our consolidated financial statements are those that are related to the determination of the reserve for credit losses , fair value estimates , leased asset residual values , and income taxes . reserve for credit losses a consequence of lending activities is that we may incur credit losses . the amount of such losses will vary depending upon the risk characteristics of the loan and lease portfolio as affected by economic conditions such as rising interest rates and the financial performance of borrowers . the reserve for credit losses consists of the allowance for loan and lease losses ( the `` allowance '' ) and a reserve for unfunded commitments ( the `` unfunded reserve '' ) . the allowance provides for probable and estimable losses inherent in our loan and lease portfolio . the allowance is increased or decreased through the provisioning process . there is no exact method of predicting specific losses or amounts that ultimately may be charged-off on particular segments of the loan and lease portfolio . the unfunded reserve is a component of other liabilities and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit . the level of the unfunded reserve is adjusted by recording an expense or recovery in other noninterest expense . 20 management 's evaluation of the adequacy of the reserve for credit losses is often the most critical of accounting estimates for a financial institution . story_separator_special_tag 2 ) on a quarterly basis , management reviews the pricing information received from our third-party pricing service . this review process includes a comparison to non-binding third-party broker quotes , as well as a review of market-related conditions impacting the information provided by our third-party pricing service . we also identify investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades relative to historic levels , as well as instances of a significant widening of the bid-ask spread in the brokered markets . as of december 31 , 2013 and 2012 , management did not make adjustments to prices provided by our third-party pricing service as a result of illiquid or inactive markets . 3 ) on a quarterly basis , management also reviews a sample of securities priced by the company 's third-party pricing service to review significant assumptions and valuation methodologies used . based on this review , management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted . 4 ) on an annual basis , to the extent available , we obtain and review independent auditor 's reports from our third-party pricing service related to controls placed in operation and tests of operating effectiveness . we did not note any significant control deficiencies in our review of the independent auditor 's reports related to services rendered by our third-party pricing service . 5 ) our third-party pricing service has also established processes for us to submit inquiries regarding quoted prices . periodically , we will challenge the quoted prices provided by our third-party pricing service . our third-party pricing service will review the inputs to the evaluation in light of the new market data presented by us . our third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis . based on the composition of our investment securities portfolio , we believe that we have developed appropriate internal controls and performed appropriate due diligence procedures to prevent or detect material misstatements . see note 20 to the consolidated financial statements for more information on our fair value measurements . leased asset residual values lease financing receivables include a residual value component , which represents the estimated value of leased assets upon lease expiration . our determination of residual value is derived from a variety of sources , including equipment valuation services , appraisals , and publicly available market data on recent sales transactions on similar equipment . the length of time until lease termination , the cyclical nature of equipment values , and the limited marketplace for re-sale of certain leased assets , are important variables considered in making this determination . we update our valuation analysis on an annual basis , or more frequently as warranted by events or circumstances . when we determine that the fair value is lower than the expected residual value at lease expiration , the difference is recognized as an asset impairment in the period in which the analysis is completed . income taxes we determine our liabilities for income taxes based on current tax regulation and interpretations in tax jurisdictions where our income is subject to taxation . currently , we file tax returns in eight federal , state and local domestic jurisdictions , and four foreign jurisdictions . in estimating income taxes payable or receivable , we assess the relative merits and risks of the appropriate tax treatment considering statutory , judicial , and regulatory guidance in the context of each tax position . accordingly , previously estimated liabilities are regularly reevaluated and adjusted through the provision for income taxes . changes in the estimate of income taxes payable or receivable occur periodically due to changes in tax rates , interpretations of tax law , the status of examinations being conducted by various taxing authorities , and newly enacted statutory , judicial and regulatory guidance that impact the relative merits and risks of each tax position . these changes , when they occur , may affect the provision for income taxes as well as current and deferred income taxes , and may be significant to our statements of income and condition . management 's determination of the realization of net deferred tax assets is based upon management 's judgment of various future events and uncertainties , including the timing and amount of future income , as well as the implementation of various tax planning strategies to maximize realization of the deferred tax assets . a valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized . as of december 31 , 2013 and 2012 , we carried a valuation allowance of $ 4.2 million and $ 5.1 million , respectively , related to our deferred tax assets established in connection with our low-income housing investments . we are also required to record a liability , referred to as an unrecognized tax benefit ( `` utb '' ) , for the entire amount of benefit taken in a prior or future income tax return when we determine that a tax position has a less than 50 % likelihood of being accepted by the taxing authority . as of december 31 , 2013 and 2012 , our liabilities for utbs were $ 11.8 million and $ 15.4 million , respectively . see note 16 to the consolidated financial statements for more information on income taxes . 22 overview we are a regional financial services company serving businesses , consumers , and governments in hawaii , guam , and other pacific islands . our principal and only operating subsidiary , the bank , was founded in 1897 and is the largest independent financial institution in hawaii . our business strategy is to use our unique market knowledge , prudent management discipline and brand strength to deliver exceptional value to our stakeholders .
| earnings summary net income for 2013 was $ 150.5 million , a decrease of $ 15.6 million or 9 % compared to 2012 . diluted earnings per share were $ 3.38 in 2013 , a decrease of $ 0.29 or 8 % compared to 2012 . our return on average assets was 1.10 % in 2013 , a decrease of 12 basis points from 2012 , and our return on average shareholders ' equity was 14.78 % in 2013 , a decrease of 145 basis points from 2012 . our lower net income in 2013 was primarily due to the following : net interest income was $ 358.9 million in 2013 , a decrease of $ 18.4 million or 5 % compared to 2012 . our net interest margin was 2.81 % in 2013 , a decrease of 16 basis points compared to 2012 . the lower margin in 2013 was primarily due to the reinvestment of investment securities and the origination of new loans at lower yields . however , as interest rates increased significantly since the early part of the second quarter of 2013 , our net interest margin has improved over the last two quarters . to the extent interest rates remain at these higher levels or increase further , it is possible that our margins may continue to improve . however , as interest rates are still at relatively low levels , any potential increase in our margin will take time to be fully realized . mortgage banking income was $ 19.2 million in 2013 , a decrease of $ 16.5 million or 46 % compared to 2012 as rising interest rates during 2013 adversely impacted the amount of refinance activity and the related loan sales margins .
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disposition of oil and natural gas properties on august 2 , 2017 , the company entered into an agreement with vantage pursuant to which vantage agreed to provide up to $ 6 million of funding to the company . on june 12 , 2017 , the company received the initial tranche of $ 400,000 in consideration for the assignment , by the company , of its interest in the undeveloped arrowhead oil and gas property , with a book value of $ 114,500 and warrants to purchase 2,560 shares of the company 's common stock ( see further discussion of these warrants in note 10 ) . the company recorded a gain of $ 1,195 as a result of this assignment that was recorded in loss on sale of property and equipment for the year ended march 31 , 2018. in september 2017 , a note holder of the company foreclosed on the assets of cati , which assets secured the note . on october 3 , 2017 , the trustee of those assets , for the benefit of the lender , sold these assets in public auction foreclosure sales which took place in gonzales county and karnes county , texas . the proceeds from the foreclosure sales of approximately $ 3.5 million were applied against the outstanding indebtedness . in december 2017 , the remaining indebtedness owed was released by the note holder ( approximately $ 5.8 million in principal and interest ) . additionally , the remaining leasehold and ownership of cati was assigned to arkose in november 2017 , in exchange for arkose 's assumption of all plugging and abandonment liabilities of cati of approximately $ 1.8 million . the company recorded an approximate loss on sale of property of approximately $ 4.1 million in conjunction with the settlement of the approximate $ 9.4 million of debt and accrued interest and the removal of approximately $ 1.3 million of remaining aro . see note 6 “ notes payable and debenture ” for further details . effective november 1 , 2017 , the company and nfp energy llc ( “ nfp ” ) its joint venture partner , sold its 90 % ownership position in oil and gas properties totaling approximately 2,452 acres in gaines county , texas , to fortuna resources permian ( “ fortuna ” ) , for $ 1,000 per acre or an aggregate of $ 2,206,718 payable to the company . the transaction resulted in a $ 727,732 gain , which is included in loss on sale of property and equipment on the statement of operations for the year ended story_separator_special_tag general the following is a discussion by management of its view of the company 's business , financial condition , and corporate performance for the past year . the purpose of this information is to give management 's recap of the past year , and to give an understanding of management 's current outlook for the near future . this section is meant to be read in conjunction with “ item 8. financial statements and supplementary data ” of this annual report on form 10-k. our fiscal year ends on the last day of march of the calendar year . we refer to the years ended march 31 , 2019 and 2018 as our 2019 and 2018 fiscal years , respectively . financing a summary of our financing transactions , funding agreements and other material funding transactions can be found under “ part i. financial information – item 1. financial statements – note 2 – liquidity and going concern considerations ” , “ note 6 – note payables and debenture ” , “ note 11 – stockholders ' equity ( deficit ) ” and “ note 16 – subsequent events ” , above . with the completion of the sale agreement and the assumption agreement and the additional equity raised , the company believes it has sufficient liquidity to operate as a going concern for the next twelve months following the issuance of these financial statements . the accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america on a going concern basis , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . accordingly , the financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the company be unable to continue as a going concern . operations camber 's objective for our current producing wells is to operate as efficiently as possible , look for technological advancements to increase the life of the wells , evaluate the economic viability of these wells and consider adding to or working over our low producing assets . costs associated with producing oil , natural gas and ngls are substantial . some of these costs vary with commodity prices , some trend with the type and volume of production , and others are a function of the number of wells we own and operate . production expenses are the costs incurred in the operation of productive properties and workover costs . expenses for utilities , direct labor , water transportation , injection and disposal , materials and supplies comprise the most significant portion of our production expenses . certain items , such as direct labor and materials and supplies , generally remain relatively fixed across broad production volume ranges , but can fluctuate depending on the activities performed during a given period . we monitor our operations to ensure that we are incurring production expenses at an acceptable level . for example , we monitor our production expenses per boe to determine if any wells or properties should be shut in , recompleted or sold . this unit rate also allows us to monitor these costs to identify trends and to benchmark against other producers . story_separator_special_tag as a result , we can not accurately predict future commodity prices and , therefore , we can not determine with any degree of certainty what effect increases or decreases in these prices will have on our production volumes or revenues . in addition to production volumes and commodity prices , finding and developing sufficient amounts of natural gas and crude oil reserves at economical costs are critical to our long-term success . we expect prices to remain volatile for the remainder of the year . for information about the impact of realized commodity prices on our natural gas and crude oil and condensate revenues , refer to “ results of operations ” below . story_separator_special_tag 0pt 0 ; text-indent : 0.5in '' > 48 interest expense . interest expense for the year ended march 31 , 2019 decreased by $ 3.6 million or 59 % when compared to the prior year primarily due to the approximate $ 2.1 million of default interest related to certain prior indebtedness which was outstanding during the year ended march 31 , 2018 , which was in default , and later satisfied through the foreclosure of certain of our assets , and the assignment of the ibc bank loan in connection with the sale of a significant amount of our assets which closed in september 2018 as described above under “ part i ” – “ item 1. business ” - “ recent events ” - “ n & b energy asset disposition agreement ” and “ assumption agreement ” . other expense . other expense for the year ended march 31 , 2019 decreased by approximately $ 0.4 million when compared to the prior period primarily due , in part , to interest earned on overnight investments and more favorable settlements of disputed accounts payable claims . liquidity and capital resources the accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america on a going concern basis , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . accordingly , the consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the company be unable to continue as a going concern . our primary sources of cash for the year ended march 31 , 2019 were from funds generated from the sale of preferred stock , the sale of natural gas and crude oil production and funds raised through the sale of series c preferred stock . the primary uses of cash were funds used in operations . as of march 31 , 2019 , the company had net working capital of approximately $ 6.1 million , which management believes is sufficient to fund operating costs and planned capital expenditures for the twelve months following the issuance of these financial statements . in the event the lineal transaction does not occur , management intends to use a portion of its working capital to facilitate other targeted acquisitions and mergers . if additional financing is required to consummate transactions , management intends to seek additional equity and debt financing , as needed . plan of operations after the divestiture of our oklahoma and south texas properties during fiscal 2018 and 2019 , as discussed in further detail herein , we initiated discussions with several potential acquisition and merger candidates to diversify our operations . in may 2019 , we entered into a non-binding letter of intent to acquire lineal star holdings , llc. , a specialty construction and oil and gas services enterprise providing services to the energy industry . under the terms of the transaction , the company anticipates paying amounts for transaction costs , working capital to fund startup operations in lineal 's houston operation and to retire short term debt of lineal . in addition , under the proposed terms of the transaction , the company anticipates designating a portion of the company 's cash on hand for targeted acquisitions to complement lineal 's operations . the lineal transaction , which is an all-stock transaction , is subject to customary closing conditions , confirmation of final transaction documents and transaction terms , including confirmation of structuring the transaction to be on a tax free basis , and other conditions , including , but not limited to final documents with our series c redeemable convertible preferred stock ( “ series c preferred stock ” ) holder amending the series c preferred stock to alter the conversion rights thereof , and obtaining the requisite nyse american approval of the transaction terms and agreements , which conditions may not be satisfied in a timely manner , if at all . the transaction contemplates the issuance of a new series of convertible preferred stock which will be convertible into 67-70 % of our fully diluted common stock after stockholder approval , as required under the applicable nyse american rules and requirements . upon receipt of shareholder approval , it is contemplated that the shareholders of lineal will have voting control of the company . whether or not the lineal transaction closes , the company intends to pursue additional acquisitions in the energy services industry sector to diversity operations . working capital at march 31 , 2019 , the company 's total current assets of $ 8.2 million exceeded its total current liabilities of approximately $ 2.1 million , resulting in working capital of $ 6.1 million , while at march 31 , 2018 , the company 's total current liabilities of $ 40.0 million exceeded its total current assets of $ 1.7 million , resulting in a working capital deficit of $ 38.3 million . the $ 44.4 million increase in working capital is primarily related to the settlement of the debt related to the sale closing in september 2018 .
| results of operations the following discussion and analysis of the results of operations for each of the two fiscal years in the period ended march 31 , 2019 should be read in conjunction with the consolidated financial statements of camber energy , inc. and notes thereto ( see “ item 8. financial statements and supplementary data ” ) . we reported net income for the year ended march 31 , 2019 of $ 16.6 million , or $ 2.22 per share . for the year ended march 31 , 2018 , we reported a net loss of $ 24.8 million , or ( $ 287.86 ) per share . the decrease in net loss was primarily due to the gain on the sale that closed in september 2018 . 46 net operating revenues the following table sets forth the revenue and production data for the years ended march 31 , 2019 and 2018. replace_table_token_5_th total crude oil and natural gas revenues for the year ended march 31 , 2019 decreased $ 4.1 million , or 60 % , to approximately $ 2.7 million , compared to $ 6.9 million for the same period a year ago due primarily to the sale that closed in september 2018. operating and other expenses the following table sets forth operating and other expenses for the years ended march 31 , 2019 and 2018 : replace_table_token_6_th 47 lease operating expenses . lease operating expenses can be divided into the following categories : costs to operate and maintain camber 's crude oil and natural gas wells , the cost of workovers and lease and well administrative expenses . operating and maintenance expenses include , among other things , pumping services , salt water disposal , equipment repair and maintenance , compression expense , lease upkeep and fuel and power . workovers are operations to restore or maintain production from existing wells .
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our three operating segments including the assets of our joint ventures include : our refined products segment , including our 9,500-mile refined products pipeline system with 53 terminals as well as 27 independent terminals not connected to our pipeline system and our 1,100-mile ammonia pipeline system ; our crude oil segment , comprised of approximately 1,100 miles of crude oil pipelines and storage facilities with an aggregate storage capacity of approximately 18 million barrels , of which 12 million is used for leased storage ; and our marine storage segment , consisting of marine terminals located along coastal waterways with an aggregate storage capacity of approximately 27 million barrels . the following discussion provides an analysis of the results for each of our operating segments , an overview of our liquidity and capital resources and other items related to our partnership . the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in this annual report on form 10-k for the year ended december 31 , 2013. recent developments bridgetex pipeline company , llc . in november 2012 , we formed bridgetex pipeline company , llc ( “ bridgetex ” ) , a joint venture with affiliates of occidental petroleum corporation . bridgetex was formed to construct and operate the bridgetex pipeline , a 400-mile pipeline capable of transporting 300,000 barrels per day of permian basin crude oil from colorado city , texas for delivery to our east houston , texas terminal ; a 50-mile pipeline between east houston and texas city , texas ; and approximately 2.6 million barrels of storage . we expect to spend a total of approximately $ 600 million , including $ 250 million we have spent as of december 31 , 2013 , in connection with our 50 % ownership interest in bridgetex . we are serving as construction manager and will serve as operator of bridgetex upon its completion , which is expected in mid-2014 . executive officer changes . our senior vice president and chief financial officer , john d. chandler , has announced his resignation from such positions effective march 31 , 2014. michael p. osborne , whom we employed in november 2013 as senior vice president , finance and accounting , will assume mr. chandler 's positions effective april 1 , 2014. mr. osborne had 23 years of experience with ernst & young llp and served as an audit partner with that firm for 11 years . longhorn pipeline . in mid-april 2013 , we began deliveries of crude oil from our longhorn pipeline . during the fourth quarter of 2013 , longhorn 's crude oil deliveries averaged approximately 185,000 barrels per day . the pipeline has been capable of operating at its full 225,000 barrel-per-day capacity since mid-october . we plan to expand the capacity of the longhorn pipeline by 50,000 barrels per day to 275,000 barrels per day , all fully committed by long-term contracts . subject to regulatory approval , we expect to reach the 275,000 barrel-per-day operating capacity by mid-2014 . we estimate this expansion project will cost approximately $ 55 million . pipeline acquisition . in february 2013 , we announced an agreement to acquire approximately 800 miles of refined petroleum products pipeline from plains all american pipeline , l.p. ( `` plains '' ) . on july 1 , 2013 , we closed on a portion of this transaction which included a 250-mile pipeline that transports refined petroleum products from el paso , texas north to albuquerque , new mexico and transports products south to the u.s.-mexico border for delivery within mexico via a third-party pipeline . in november 2013 , we acquired the remaining assets , including approximately 550 miles of common carrier pipeline that distributes refined petroleum products in colorado , south 43 dakota and wyoming . the system also includes four terminals with nearly 1.7 million barrels of storage . we funded this $ 192.0 million acquisition with cash on hand and proceeds from our recent debt offering ( see liquidity and capital resources–liquidity , below for information regarding our recent debt offering ) . this pipeline system is a strategic fit with our existing assets and customer relationships and extends the reach of our pipeline system to allow us to serve new geographic markets . the operating results of both portions of this acquisition have been included in our refined products segment since the acquisition dates . cash distribution . in january 2014 , the board of directors of our general partner declared a quarterly cash distribution of $ 0.5850 per unit for the period of october 1 , 2013 through december 31 , 2013. this quarterly cash distribution was paid on february 14 , 2014 to unitholders of record on february 7 , 2014. the total distribution paid on 227.1 million limited partner units outstanding was $ 132.8 million . overview our pipelines and terminals generate the majority of our operating margin from the transportation and storage services we provide to our customers . the revenue generated from these activities is significantly influenced by demand for refined products and crude oil . in addition , we generate operating margin from commodity-related activities . operating expenses are principally fixed costs related to routine maintenance and system integrity as well as field and support personnel . other costs , including power , fluctuate with volumes transported on our pipelines and stored in our terminals . refined products . our common carrier pipeline system is comprised of 9,500 miles of pipeline and 53 terminals that provide transportation , storage and distribution services for refined products in a 15-state area across the central united states . through direct refinery connections and interconnections with other interstate pipelines , our refined products pipeline can access approximately 48 % of the u.s. refining capacity . in 2013 , the refined products segment generated 68 % of its revenue , excluding the sale of refined products , primarily through transportation tariffs for refined products shipped . story_separator_special_tag 45 during 2012 and 2013 , respectively , we spent $ 364.7 million and $ 772.7 million combined on expansion capital , acquisitions and investments in non-controlled entities . further , we currently expect to spend approximately $ 550.0 million in 2014 on projects now underway . these expansion capital estimates exclude potential acquisitions or spending on more than $ 500.0 million of other potential growth projects in earlier stages of development . results of operations we believe that investors benefit from having access to the same financial measures utilized by management . operating margin , which is presented in the following tables , is an important measure used by management to evaluate the economic performance of our core operations . operating margin is not a generally accepted accounting principles ( “ gaap ” ) measure , but the components of operating margin are computed using amounts that are determined in accordance with gaap . a reconciliation of operating margin to operating profit , which is its nearest comparable gaap financial measure , is included in the following tables . operating profit includes expense items , such as depreciation and amortization expense and general and administrative ( “ g & a ” ) expenses , which management does not focus on when evaluating the core profitability of our separate operating segments . additionally , product margin , which management primarily uses to evaluate the profitability of our commodity-related activities , is provided in these tables . product margin is a non-gaap measure ; however , its components of product sales and cost of product sales are determined in accordance with gaap . our butane blending , fractionation and other commodity-related activities generate significant product revenue . we believe the product margin from these activities , which takes into account the related cost of product sales , better represents its importance to our results of operations . 46 year ended december 31 , 2012 compared to year ended december 31 , 2013 replace_table_token_9_th ( a ) product margin does not include depreciation or amortization expense . 47 transportation and terminals revenue increased by $ 167.6 million , resulting from : an increase in refined products revenue of $ 77.3 million . excluding the pipeline systems we acquired in 2013 , refined products revenue increased $ 65.3 million primarily due to a 3 % increase in transportation volumes and higher rates . shipments were higher primarily due to increased demand for gasoline and distillates . the average rate per barrel increased due to the mid-year 2012 and 2013 tariff rate increases of 8.6 % and 4.6 % , respectively ; an increase in crude oil revenue of $ 86.1 million primarily due to crude oil deliveries from our longhorn pipeline , which represented approximately 85 % of the increase . our longhorn pipeline began delivering crude oil in 2013 and averaged approximately 125,000 barrels per day since its mid-april start date . we also benefited from higher utilization on our houston-area crude oil distribution system and additional condensate throughput at our corpus christi terminal ; and an increase in marine storage revenue of $ 4.2 million primarily due to new storage placed into service at our galena park , texas terminal since late 2012 and higher throughput fees , partially offset by lower utilization mainly due to additional integrity work during the 2013 period . affiliate management fee revenue increased $ 12.6 million , primarily resulting from a full year of construction management fees received from bridgetex in 2013 , compared to one month of fees received in 2012. the construction management fees we receive are designed to reimburse us for our costs of providing construction services to bridgetex . operating expenses increased $ 17.6 million , resulting from : an increase in refined products expenses of $ 3.0 million primarily due to higher asset integrity costs , compensation , power costs and property taxes , as well as $ 5.1 million of expenses related to operation of the pipeline systems we acquired in 2013 , partially offset by higher product overages ( which reduce operating expenses ) , lower losses on asset retirements , the 2013 favorable adjustment of an accrual for air emission fees at our east houston terminal ( see notes to consolidated financial statements , note 17– commitments and contingencies for more information regarding the adjustment of this accrual ) and lower environmental accruals . the higher compensation costs were due to increased employee headcount and higher bonus accruals . the higher power costs primarily reflect the increase in product shipments over 2012 and the higher property taxes are the result of asset additions and improved profitability over the past year ; an increase in crude oil expenses of $ 13.9 million primarily due to costs related to the operation of our longhorn pipeline in crude oil service in 2013 , including pipeline rental costs to access product from third-party origination sources , higher personnel costs , power and integrity spending , partially offset by more favorable product overages ( which reduce operating expenses ) ; and an increase in marine storage expenses of $ 0.9 million primarily due to higher asset integrity costs in the current year resulting from additional tank work , higher insurance costs and higher property taxes , partially offset by the 2013 favorable adjustment of an accrual for potential air emission fees at our galena park facility ( see notes to consolidated financial statements , note 17– commitments and contingencies for more information regarding the adjustment of this accrual ) and lower environmental accruals . product sales revenue primarily resulted from our butane blending activities , transmix fractionation and product gains from our independent terminals . we utilize new york mercantile exchange ( “ nymex ” ) contracts to hedge against changes in the price of petroleum products we expect to sell in the future .
| results of operations above , the change in equity-based compensation is discussed in footnote 2 to the table above and a discussion of our maintenance capital expenditures is provided in capital requirements below . the change in dcf from commodity- 52 related adjustments is primarily due to the impact of product price changes during each period on economic hedges that do not qualify for hedge accounting treatment and the discontinuance of our houston-to-el paso linefill management activities in 2012. a reconciliation of dcf to distributions paid is as follows ( in millions ) : replace_table_token_12_th liquidity and capital resources cash flows and capital expenditures net cash provided by operating activities was $ 577.3 million , $ 645.1 million and $ 772.7 million for the years ended december 31 , 2011 , 2012 and 2013 , respectively . the $ 127.6 million increase from 2012 to 2013 was primarily attributable to : ◦ a $ 160.8 million increase in net income and non-cash depreciation and amortization expense ; ◦ a $ 13.2 million increase resulting from a $ 2.0 million increase in accounts payable in 2013 versus a $ 11.2 million decrease in accounts payable in 2012 , primarily due to the timing of invoices paid to vendors and suppliers ; and ◦ a $ 10.4 million increase resulting from a $ 16.8 million increase in deferred revenue in 2013 versus a $ 6.4 million increase in deferred revenue in 2012. the increase in 2013 was primarily due to an increase related to customers ' transportation deficiencies where our customers have the right to apply these deferrals against future product shipments and a deferral of a sale of an asset where the title had not yet passed , but the cash had been received .
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the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes included in part iv of this annual report . additional sections in this annual report should be helpful to the reading of our discussion and analysis and include the following : ( i ) a description of our business strategy found in “ item 1. business–overview ” ; ( ii ) a description of recent developments , found in “ item 1. business–recent developments ” ; and ( iii ) a description of risk factors affecting us and our business , found in “ item 1a . risk factors. ” also , the partnership files a separate annual report on form 10-k with the sec . in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers ( topic 606 ) . the amendments in this update supersede the revenue recognition requirements in topic 605 , revenue recognition , and most industry-specific guidance . we adopted topic 606 on january 1 , 2018 by applying the modified retrospective transition approach to contracts which were not completed as of the date of adoption . the adoption of topic 606 did not result in an impact to our operating or gross margin . however , the adoption did have an impact on the classification between components of operating margin and gross margin , “ fees from midstream services ” and “ product purchases , ” as well as the reporting of gross versus net revenues . for more information , see “ recent accounting pronouncements ” included within note 3 – significant accounting policies in our consolidated financial statements . overview targa resources corp. ( nyse : trgp ) is a publicly traded delaware corporation formed in october 2005. targa is a leading provider of midstream services and is one of the largest independent midstream energy companies in north america . we own , operate , acquire and develop a diversified portfolio of complementary midstream energy assets . we are engaged in the business of : gathering , compressing , treating , processing , transporting and selling natural gas ; storing , fractionating , treating , transporting and selling ngls and ngl products , including services to lpg exporters ; gathering , storing , terminaling and selling crude oil ; and storing , terminaling and selling refined petroleum products . factors that significantly affect our results our results of operations are impacted by a number of factors , including changes in commodity prices , the volumes that move through our gathering , processing and logistics assets , contract terms , the impact of hedging activities and the cost to operate and support assets . 57 commodity prices the following table presents selected average annual and quarterly industry index prices for natural gas , selected ngl products and crude oil for the periods presented : replace_table_token_5_th ( 1 ) natural gas prices are based on average first of month prices from henry hub inside ferc commercial index prices . ( 2 ) “ illustrative targa ngl ” pricing is weighted using average quarterly prices from mont belvieu non-tet monthly commercial index and represents the following composition for the periods noted : 2018 : 38 % ethane , 34 % propane , 12 % normal butane , 5 % isobutane and 11 % natural gasoline 2017 : 38 % ethane , 34 % propane , 13 % normal butane , 5 % isobutane and 10 % natural gasoline 2016 : 38 % ethane , 34 % propane , 12 % normal butane , 5 % isobutane and 11 % natural gasoline ( 3 ) crude oil prices are based on average quarterly prices of west texas intermediate crude oil as measured on the nymex . volumes in our gathering and processing operations , plant inlet volumes , crude oil volumes and capacity utilization rates generally are driven by wellhead production and our competitive and contractual position on a regional basis and more broadly by the impact of prices for crude oil , natural gas and ngls on exploration and production activity in the areas of our operations . the factors that impact the gathering and processing volumes also impact the total volumes that flow to our downstream business . in addition , fractionation volumes are also affected by the location of the resulting mixed ngls , available pipeline capacity to transport ngls to our fractionators and our competitive and contractual position relative to other fractionators . contract terms , contract mix and the impact of commodity prices with the potential for volatility of commodity prices , the contract mix of our gathering and processing segment , other than fee-based contracts in certain gathering and processing business units and gathering and processing services , can have a significant impact on our profitability , especially those contracts that create direct exposure to changes in energy prices by paying us for gathering and processing services with a portion of proceeds from the commodities handled ( “ equity volumes ” ) . contract terms in the gathering and processing segment are based upon a variety of factors , including natural gas and crude quality , geographic location , competitive dynamics and the pricing environment at the time the contract is executed , and customer requirements . our gathering and processing contract mix and , accordingly , our exposure to crude , natural gas and ngl prices may change as a result of producer preferences , competition and changes in production as wells decline at different rates or are added , our expansion into regions where different types of contracts are more common and other market factors . the contract terms and contract mix of our downstream business can also have a significant impact on our results of operations . fractionation services are supported by fee-based contracts whose rates and terms are driven by ngl supply and fractionation capacity . export services are supported by fee-based contracts whose rates and terms are driven by global lpg demand fundamentals . story_separator_special_tag if the cost of such capital becomes too expensive , our ability to develop or acquire strategic and accretive assets may be limited . we may not be able to raise the necessary funds on satisfactory terms , if at all . the primary factors influencing our cost of borrowing include interest rates , credit spreads , covenants , underwriting or loan origination fees and similar charges we pay to lenders . these factors may impair our ability to execute our acquisition and growth strategy . in addition , we are experiencing increased competition for the types of assets we contemplate purchasing or developing . current economic conditions and competition for asset purchases and development opportunities could limit our ability to fully execute our growth strategy . increased regulation additional regulation in various areas has the potential to materially impact our operations and financial condition . for example , increased regulation of hydraulic fracturing used by producers and increased ghg emission regulations may cause reductions in supplies of natural gas , ngls and crude oil from producers . please read “ laws and regulations regarding hydraulic fracturing could result in restrictions , delays or cancellations in drilling and completing new oil and natural gas wells by our customers , which could adversely impact our revenues by decreasing the volumes of natural gas , ngls or crude oil through our facilities and reducing the utilization of our assets ” and “ the adoption and implementation of climate change legislation or regulations restricting emissions of ghgs could result in increased operating costs and reduced demand for the products and services we provide ” under item 1a of this annual report . similarly , the forthcoming rules and regulations of the cftc may limit our ability or increase the cost to use derivatives , which could create more volatility and less predictability in our results of operations . how we evaluate our operations the profitability of our business is a function of the difference between : ( i ) the revenues we receive from our operations , including fee-based revenues from services and revenues from the natural gas , ngls , crude oil and condensate we sell , and ( ii ) the costs associated with conducting our operations , including the costs of wellhead natural gas , crude oil and mixed ngls that we purchase as well as operating , general and administrative costs and the impact of our commodity hedging activities . because commodity price movements tend to impact both revenues and costs , increases or decreases in our revenues alone are not necessarily indicative of increases or decreases in our profitability . our contract portfolio , the prevailing pricing environment for crude oil , natural gas and ngls , and the volumes of crude oil , natural gas and ngl throughput on our systems are important factors in determining our profitability . our profitability is also affected by the ngl content in gathered wellhead natural gas , supply and demand for our products and services , utilization of our assets and changes in our customer mix . our profitability is also impacted by fee-based contract s. our growing fee-related capital expenditures for pipelines , expansion of our downstream facilities , as well as third-party acquisitions of businesses and assets , will continue to increase the number of our contracts that are fee-based . fixed fees for services such as fractionation , storage , terminaling and crude oil gathering are not directly tied to changes in market prices for commodities . nevertheless , a change in unit fees due to market dynamics such as available commodity throughput does affect profitability . management uses a variety of financial measures and operational measurements to analyze our performance . these include : ( 1 ) throughput volumes , facility efficiencies and fuel consumption , ( 2 ) operating expenses , ( 3 ) capital expenditures and ( 4 ) the following non-gaap measures : gross margin , operating margin , adjusted ebitda and distributable cash flow . 60 throughput volumes , facility efficiencies and fuel consumption our profitability is impacted by our ability to add new sources of natural gas supply and crude oil supply to offset the natural decline of existing volumes from oil and natural gas wells that are connected to our gathering and processing systems . this is achieved by connecting new wells and adding new volumes in existing areas of production , as well as by capturing crude oil and natural gas supplies currently gathered by third parties . similarly , our profitability is impacted by our ability to add new sources of mixed ngl supply , connected by third-party transportation and in the future through grand prix , to our downstream business fractionation facilities and at times to our export facilities . we fractionate ngls generated by our gathering and processing plants , as well as by contracting for mixed ngl supply from third-party facilities . in addition , we seek to increase operating margin by limiting volume losses , reducing fuel consumption and by increasing efficiency . with our gathering systems ' extensive use of remote monitoring capabilities , we monitor the volumes received at the wellhead or central delivery points along our gathering systems , the volume of natural gas received at our processing plant inlets and the volumes of ngls and residue natural gas recovered by our processing plants . we also monitor the volumes of ngls received , stored , fractionated and delivered across our logistics assets . this information is tracked through our processing plants and downstream business facilities to determine customer settlements for sales and volume related fees for service and helps us increase efficiency and reduce fuel consumption . as part of monitoring the efficiency of our operations , we measure the difference between the volume of natural gas received at the wellhead or central delivery points on our gathering systems and the volume received at the inlet of our processing plants as an indicator of fuel consumption and line loss .
| consolidated results of operations the following table and discussion is a summary of our consolidated results of operations : replace_table_token_8_th ( 1 ) gross margin , operating margin , adjusted ebitda , and distributable cash flow are non-gaap financial measures and are discussed under “ management 's discussion and analysis of financial condition and results of operations–how we evaluate our operations. ” ( 2 ) capital expenditures , net of contributions from noncontrolling interest , were $ 2,740.7 million , $ 1,441.5 million and $ 524.8 million for the years ended december 31 , 2018 , 2017 and 2016 . ( 3 ) includes the $ 416.3 million acquisition date fair value of the potential earn-out payments . nm due to a low denominator , the noted percentage change is disproportionately high and as a result , considered not meaningful . 2018 compared to 2017 the increase in commodity sales reflects increased ngl , natural gas , petroleum and condensate volumes ( $ 1,606.0 million ) and higher ngl and condensate prices ( $ 742.2 million ) , partially offset by lower natural gas prices ( $ 465.7 million ) and the impact of hedges ( $ 22.4 million ) . fee-based and other revenues increased primarily due to higher gas processing and crude gathering fees . the increase in product purchases r eflects increased volumes and higher ngl and condensate prices . the prospective adoption of the revenue recognition accounting standard as set forth in topic 606 in 2018 resulted in lower commodity sales ( $ 333.2 million ) and lower fee revenue ( $ 39.6 million ) with a corresponding net reduction in product purchases , resulting in no impact on operating margin or gross margin . 65 the higher operating margin and gross margin in 2018 reflect increased segment results for both gathering and processing and logistics and marketing . see “ —results of operations—by reportable segment ” for additional information regarding changes in operating margin and gross margin on a segment basis .
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forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in part i , item 1a of this annual report under the heading “ risk factors , ” which are incorporated herein by reference . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in part ii , item 8 of this annual report . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . each of the terms the “ company , ” “ identiv , ” “ we ” and “ us ” as used herein refers collectively to identiv , inc. and its wholly-owned subsidiaries , unless otherwise stated . overview identiv , inc. is a global provider of physical security and secure identification . our products , software , systems , and services address the markets for physical and logical access control , video analytics and a wide range of radio frequency identification ( “ rfid ” ) -enabled applications . customers in government , enterprise , consumer , education , healthcare , banking , retail , transportation and other sectors rely on our security and identification solutions . our mission is to make the physical world digital and secure . our platform to deliver on our mission can be deployed through internet of things ( “ iot ” ) devices , mobile , client/server , cloud , web , dedicated hardware and software-defined architectures . our solutions encompass what we believe to be the most complete set of technologies in the industry . we are a one-stop shop for software delivering physical security management , video surveillance , logical access , analytics and identities ; and devices spanning access readers , panels , processing appliances , and identity cards . we provide services to deliver optimized total solutions , serving as a single-point provider for our customers rather than several separate vendors that the customer would otherwise have to coordinate and manage . we have organized our operations into two reportable business segments , principally by solution families : premises and identity . in the fourth quarter of 2018 , we realigned the way in which we organize our operating segments in making operating decisions and assessing financial performance by combining our identity and credentials segments . the combined segment is now referred to as the identity segment . all comparative segment information for fiscal 2017 has been reclassified to conform to the fiscal 2018 presentation . premises the premises segment includes our solutions to address the premises security market for government and enterprise , including access control , video surveillance , analytics , customer experience and other applications . our physical security platform is anchored by the hirsch velocity management software , our line of controllers including the advanced mx line , our touchsecure access readers , a wide range of integrations and our identiv global services team that develops optimized solutions for our customers ' total business and security environment , incorporating our products and partner products that together best serve our customers ' goals . we have further extended our physical access platform with our identiv connected physical access manager ( “ icpam ” ) software , derived from cisco 's physical access manager ( “ cpam ” ) system . in february 2018 , we acquired 3vr security , inc. ( “ 3vr ” ) , a video technology and analytics company . with the acquisition , we added the 3vr video security and analytics platform , which is a natural complement to our physical access offering . nearly all customers for access control are customers for video security , and vice versa . additionally , the events and data generated by both platforms combine to create what we believe to be uniquely valuable information for our customers to provide frictionless yet robust security . 3vr 's platform is architected as an analytics system , proven across applications in the retail , banking , and other vertical markets , and valuable to our physical security markets in government , education , critical infrastructure , transportation and others . in addition to technology , 3vr brought deep market presence , across over 170 banks , installations with over 50,000 cameras under our software 's management , top-tier retailers , and a 100 % u.s.-made platform . 25 in january 2019 , we acquired substantially all assets of the freedom , liberty , and enterphone mesh products and services of viscount systems , inc. ( “ viscount ” ) . the web-based freedom and liberty access control and enterphone mesh ip telephone entry solutions are known for their early adoption of a web , api-bas ed , cloud-ready architecture , creating an it-centric software-focused and hardware-light platform . scaling from small- and medium-sized businesses ( “ smb ” ) up to enterprise scale for government and commercial markets , freedom and the entry-level liberty pro duct line are complementary to our other products . with freedom , customers can build integrated access control and video management systems under one centrally managed or distributed network , seamlessly integrating physical security devices such as card re aders , id management , active directory/ldap , visitor entry , alarm points , and video applications and analytics . we believe the combination creates one of the most-advanced , it-centric solutions for physical security , delivering a seamless evolution from tr aditional physical access models to next-generation , cloud and web-based , and mobile-enabled systems . our touchsecure ( “ ts ” ) readers , ts cards , vms platform , mobile logical access and our identiv global services ( “ igs ” ) services are applicable to nearly al l freedom and liberty customers . story_separator_special_tag these capabilities have allowed over a hundred thousand dod and federal employees , including the u.s. navy reserve , via the ready-2-serve ( “ r2s ” ) mobile application , to use personal and government-furnished mobile devices to access needed information on-the-go . prior to the acquisition , tss had sold more than one million software licenses to a range of customers and industries , including government , healthcare , finance , energy , education , research , fortune 500 , global 2000 , and original equipment manufacturers ( “ oems ” ) . we have established a leading position as a trusted provider of convenient high-security solutions to government and enterprise customers . our products are customizable to specific customer preferences , providing both high security and excellent end-user convenience . tss ' seamless support of both government-grade smart card deployments and derived credentials reflects our philosophy of supporting customers ' adoption of technologies at their own pace , optimized for their own use cases . smart card readers — with over 20 years of smart card reader , application and token experience , and over 40 million smart card readers and modules deployed , we are known for our expertise in this complex ecosystem . we combine our deep technical expertise with an optimized supply chain , to provide what we believe to be the most optimal , cost-effective and high-quality smart card-based reader products . whether identiv branded products , oem branded , or embedded chips or modules , we are a trusted business solution provider for users and issuers of smart cards and embedded-chip applications . our rfid based solutions address a wide range of applications from access control to asset tracking , product authenticity , brand protection , customer engagement , tamper detection , product instrumentation , transportation access and other iot applications . the rfid devices enable frictionless interaction with the physical world and are grouped into transponders and access cards . transponders — our transponder products span the full range of high frequency ( “ hf ” ) and ultra-high frequency ( “ uhf ” ) technologies . our differentiation is analogous to application-specific integrated circuits ( “ asics ” ) in the semiconductor market . we leverage our flexible platform , our deep technical expertise and our infrastructure and supply chain to deliver solutions optimized for our customers ' business goals . we believe we are more responsive , more flexible , more experienced in business-optimized solutions and have a better track record of sustained delivery of solution-specific , high-quality rfid devices than our competitors . these products are manufactured in our state-of-the-art facility in singapore and are used in diverse physical applications , including electronic entertainment such as virtual reality ( “ vr ” ) , games , loyalty cards , mobile payment systems , transit and event ticketing , brand authenticity from pharmaceuticals to consumer goods , hospital resource management , cold-chain management and many others . access cards — our utrust cards encompass contactless single-technology , multi-technology , or credentials with a contact chip , including utrust proximity credentials , utrust smart id secure credentials , utrust mifare classic credentials , and our utrust ts cards . this gives our customers easy access to rfid technology for reliable data exchange of physical access control system ( pacs ) data , up to options for versatile , high-frequency , interoperable , mifare-compatible smart cards . our utrust ts cards address emerging security requirements while maintaining compatibility with existing low-security standards such as prox . we believe they offer the first complete solution to allow customers to pay only for the most basic low-frequency proximity access technology while having the ability to evolve to the higher-security high-frequency and highest-security public key infrastructure ( “ pki ” ) based credentials . this product line exemplifies our values : we place no burden on our customers , instead providing what we believe to be the most cost-effective solution to their basic needs ; and then delivering within this platform the ability for them to move to higher-level needs and capabilities , when they want , when they are ready and when they will realize economic and experience benefits . 27 leveraging our expertise in rfid , physical access and physical authentication , we are developing new solutions to extend our platforms across a wide variety of physical use cases . the next major opportunity in our connected world is the iot , which fundamentally is about physical things . we believe our core strength in physical access and physical instrumentation markets , our well-established platforms and our deep knowledge of the relevant technologies , position us well in this growth market . for a discussion of our net revenue by segment and geographic location , see note 13 , segment reporting and geographic information , in the accompanying notes to our consolidated financial statements . trends in our business geographic net revenue , based on each customer 's ship-to location , for the years ended december 31 , 2018 and 2017 is as follows ( in thousands ) : replace_table_token_1_th net revenue trends net revenue in 2018 was $ 78.1 million , an increase of 30 % compared with $ 60.2 million in 2017. net revenue in our premises segment , which accounted for 44 % of our net revenue , was $ 34.6 million in 2018 , an increase of 43 % compared with $ 24.2 million in 2017. net revenue in our identity segment , which represented 56 % of our net revenue , was $ 43.6 million in 2018 , an increase of 21 % compared with $ 36.1 million in 2017. net revenue in the americas net revenue in the americas was $ 60.2 million in 2018 , accounting for 77 % of total net revenue , an increase of 50 % compared with $ 40.0 million in 2017. net revenue from our premises solution for security programs within various u.s. government agencies , as well as rfid and nfc products , inlays and tags represented approximately 51 % of our net revenue in the americas region .
| results of operations the following table includes segment net revenue and segment net profit information by business segment and reconciles gross profit to results of operations before income taxes and noncontrolling interest . replace_table_token_2_th the following table sets forth our statements of operations as a percentage of net revenue for the periods indicated ( in thousands ) : replace_table_token_3_th 30 fiscal 2018 compared with fiscal 2017 net revenue net revenue in 2018 was $ 78.1 million , up 30 % compared with $ 60.2 million in 2017. net revenue was higher in 2018 driven by higher sales across both segments . net revenue in our premises segment of $ 34.6 million in 2018 increased 43 % from $ 24.2 million in 2017. the increase was primarily due to additional sales of video technology and analytics hardware and software products and related support services following the acquisition of 3vr in february 2018 , as well as higher sales of physical access control solutions , higher sales through our channel partners , and higher software licensing sales . net revenue in our identity segment of $ 43.6 million in 2018 increased 21 % from $ 36.1 million in 2017 primarily due to additional sales of mobile security solution products , including a large bulk order of readers in the fourth quarter of 2018 to the u.s. air force , following the acquisition of tss in november 2018 , and higher access card product sales . gross profit gross profit for 2018 was $ 33.3 million , or 43 % of net revenue , compared to $ 22.2 million or 37 % of net revenue in 2017. gross profit represents revenues less direct cost of product sales , manufacturing overhead , other costs directly related to preparing the product for sale including freight , scrap , inventory adjustments and amortization , where applicable .
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we currently maintain all repurchased shares under these stock repurchase programs as treasury stock story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this report . in addition to historical financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those discussed under “ risk factors ” and elsewhere in this report . 30 sale of high speed optical receiver business on august 9 , 2017 , we completed the sale of our high speed optical receivers ( `` hsor '' ) business , which was part of our products and licensing segment , to an unaffiliated third party for an initial purchase price of $ 33.5 million , of which $ 29.5 million in cash has been received , and $ 4.0 million was placed into escrow until december 15 , 2018 for possible working capital adjustments to the purchase price and potential satisfaction of certain post-closing indemnification obligations ( the `` transaction '' ) . as part of the transaction , the buyer also hired approximately 49 of our employees who were engaged in the development , manufacture , and sale of hsor products in addition to certain corporate administrative functions . the buyer provided certain transition services to us with respect to infrastructure and administration for which we paid $ 0.3 million per month for a period of five months , for a total of $ 1.5 million , following the closing of the transaction . we recorded this obligation as a reduction of the value of the purchase price . in assessing the fair value of the services expected to be received by us versus those we expect to deliver to the buyer , we concluded that the transition service payments were more closely aligned with the fair value of the assets sold versus the services received and thus should be part of the consideration reconciliation versus operating activities . business overview we are a leader in advanced optical technology , providing unique capabilities in high speed optoelectronics and high performance fiber optic test products for the telecommunications industry and distributed fiber optic sensing for the aerospace and automotive industries . our distributed fiber optic sensing products provide critical stress , strain and temperature information to designers and manufacturers working with advanced materials . our custom optoelectronic products are sold to scientific instrumentation manufacturers for various applications such as metrology , missile guidance , flame monitoring , and temperature sensing . in addition , we provide applied research services , typically under research programs funded by the u.s. government , in areas of advanced materials , sensing , and healthcare applications . our business model is designed to accelerate the process of bringing new and innovative products to market . we use our in-house technical expertise across a range of technologies to perform applied research services for companies and for government funded projects . we continue to invest in product development and commercialization , which we anticipate will lead to increased product sales growth . we are organized into two main business segments , our products and licensing segment and our technology development segment . our products and licensing segment develops , manufactures and markets fiber optic sensing products , as well as test & measurement products , and also conducts applied research in the fiber optic sensing area for both corporate and government customers . we are continuing to develop and commercialize our fiber optic technology for strain and temperature sensing applications for the aerospace , automotive , and energy industries . our products and licensing segment revenues represented approximately 60 % and 61 % of our total revenues for the years ended december 31 , 2017 and 2016 , respectively . our technology development segment performs applied research principally in the areas of sensing & instrumentation , advanced materials , and health sciences . our technology development segment comprised approximately 40 % and 39 % of our total revenues for the years ended december 31 , 2017 and 2016 , respectively . most of the government funding for our technology development segment is derived from the small business innovation research ( `` sbir '' ) , program coordinated by the u.s. small business administration ( `` sba '' ) . our technology development segment revenues have historically accounted for a large portion of our total revenues , and we expect that they will continue to represent a significant portion of our total revenues for the foreseeable future . within the technology development segment , we have historically had a backlog of contracts for which work has been scheduled , but for which a specified portion of work has not yet been completed . we define backlog as the dollar amount of obligations payable to us under negotiated contracts upon completion of a specified portion of work that has not yet been completed , exclusive of revenues previously recognized for work already performed under these contracts , if any . total backlog includes funded backlog , which is the amount for which money has been directly authorized by the u.s. government and for which a purchase order has been received by a commercial customer , and unfunded backlog , representing firm orders for which funding has not yet been appropriated . indefinite delivery and quantity contracts and unexercised options are not reported in total backlog . the approximate value of our technology development segment backlog was $ 23.5 million and $ 17.6 million at december 31 , 2017 and 2016 , respectively . the approximate value of our products and licensing segment backlog was $ 6.9 million and $ 7.2 million at december 31 , 2017 and 2016 , respectively . story_separator_special_tag revenue from cost reimbursable contracts is recognized as costs are incurred plus an estimate of applicable fees earned . we consider fixed fees under cost reimbursable contracts to be earned in proportion to the allowable costs incurred in performance of the contract . revenue from time and materials contracts is recognized based on direct labor hours expended at contract billing rates plus other billable direct costs . fixed price contracts may include either a product delivery or specific service performance throughout a period . for fixed price contracts that are based on the proportional performance method and involve a specified number of deliverables , we recognize revenue based on the proportion of the cost of the deliverables compared to the cost of all deliverables included in the contract as this method more accurately measures performance under these arrangements . for fixed price contracts that provide for the development and delivery of a specific prototype or product , revenue is recognized based upon the percentage of completion method . our contracts with agencies of the u.s. government are subject to periodic funding by the respective contracting agency . funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided . in evaluating the probability of funding for purposes of assessing collectability of the contract price , we consider our previous experience with our customers , communication with our customers regarding funding status and our knowledge of available funding for the contract or program . if funding is not assessed as probable , revenue recognition is deferred until realization is reasonably assured . contract revenue recognition inherently involves estimation , including the contemplated level of effort to accomplish the tasks under the contract , the cost of the effort and an ongoing assessment of progress toward completing the contract . from time to time , as part of normal management processes , facts may change , causing revisions to estimated total costs or revenues expected . the cumulative impact of any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known . the underlying bases for estimating our contract research revenues are measurable expenses , such as labor , subcontractor costs and materials , and data that are updated on a regular basis for purposes of preparing our cost estimates . our research contracts generally have a period of performance of six months to three years , and our estimates of contract costs have historically been consistent with actual results . revisions in these estimates between accounting periods to reflect changing facts and circumstances have not had a material impact on our operating results , and we do not expect future changes in these estimates to be material . whether certain costs under government contracts are allowable is subject to audit by the government . certain indirect costs are charged to contracts using provisional or estimated indirect rates , which are subject to later revision based on government audits of those costs . management is of the opinion that costs subsequently disallowed , if any , would not likely have a significant impact on revenues recognized for those contracts . 33 products and licensing revenues we recognize revenue relating to our product sales when persuasive evidence of an arrangement exists , delivery has occurred , the selling price is fixed or determinable and collectability of the resulting receivable is reasonably assured . for tangible products that contain software that is essential to the tangible product 's functionality , we consider the product and software to be a single unit of accounting and recognize revenue accordingly . we evaluate product sales that are a part of multiple-element revenue arrangements to determine whether separate units of accounting exist , and we follow appropriate revenue recognition policies for each separate unit . for multi-element arrangements we allocate revenue to all significant deliverables based on their relative selling prices . in such circumstances , we use a hierarchy to determine the selling price to be used for allocating revenue to deliverables : ( i ) vendor-specific objective evidence of fair value ( `` vsoe '' ) , ( ii ) third-party evidence of selling price ( `` tpe '' ) , and ( iii ) best estimate of the selling price ( `` esp '' ) . vsoe exists only when we sell the deliverable separately and is the price actually charged by us for that deliverable . our product sales often include bundled products , options , and services and therefore vsoe is not readily determinable . in addition , we believe that because of unique features of our products , tpe also is not available . esp , which is used when vsoe and tpe does not exist , reflects our best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis . we also sell extended warranties from time to time . in this case , we accrue warranty costs based on our estimate of future expense and defer revenue associated with the warranty . the deferred warranty revenue is recognized over the period of the warranty . our process for determining esp for deliverables without vsoe or tpe considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable . key factors considered in developing the esps include prices charged by us for similar offerings , our historical pricing practices , the nature of the deliverables , and the relative esp of all of the deliverables as compared to the total selling price of the product . we may also consider , when appropriate , the impact of other products and services , on selling price assumptions when developing and reviewing our esps . income taxes we estimate our tax liability through calculating our current tax liability , together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes .
| results of operations the following table shows information derived from our consolidated statements of operations expressed as a percentage of total revenues for the periods presented . replace_table_token_4_th year ended december 31 , 2017 compared to year ended december 31 , 2016 revenues replace_table_token_5_th our technology development segment revenues increased $ 2.3 million to $ 18.6 million for the year ended december 31 , 2017 compared to $ 16.3 million for the year ended december 31 , 2016 . this increase was attributable primarily to growth in our intelligent systems and biomedical technologies groups . revenues within these groups increased due to additional contract awards , including higher value phase ii sbir contracts . our products and licensing segment revenues increased $ 2.1 million to $ 27.7 million for the year ended december 31 , 2017 compared to $ 25.6 million for the year ended december 31 , 2016 . this increase was primarily driven by an increase in our sales of optical backscatter reflectometer instruments and optoelectronic components . cost of revenues replace_table_token_6_th our technology development segment costs increased $ 1.5 million , to $ 14.0 million for the year ended december 31 , 2017 compared to $ 12.5 million for the year ended december 31 , 2016 . the overall increase in technology development 36 segment costs was driven by increases in direct labor and subcontractor costs consistent with the rate of growth in technology development segment revenues . our products and licensing segment costs increased $ 0.5 million to $ 14.1 million for the year ended december 31 , 2017 compared to $ 13.6 million for the year ended december 31 , 2016 . the increase in product and licensing cost is attributable to the component costs associated with increased volume of optical backscatter reflectometer instrument sales .
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the presentation of non-gaap measures is intended to enhance the usefulness of financial information by providing measures which , when viewed together with our financial results reported in accordance with gaap , provide a more complete understanding of the factors and trends affecting our historical financial performance and projected future results . the reconciliation of reported gaap results to non-gaap measures is presented on pages 35-40. descriptions of the excluded items appear on pages 27-29. business overview air products and chemicals , inc. is a world-leading industrial gases company in operation for over 75 years . the company 's core industrial gases business provides atmospheric and process gases and related equipment to manufacturing markets , including refining and petrochemical , metals , electronics , and food and beverage . air products is also the world 's leading supplier of liquefied natural gas process technology and equipment . the company 's materials technologies business serves the semiconductor , polyurethanes , cleaning and coatings , and adhesives industry . with operations in over 50 countries , in 2016 we had sales of $ 9.5 billion , assets of $ 18.1 billion , and a worldwide workforce of approximately 18,600 employees . as of 30 september 2016 , our operations were organized into six reportable business segments : industrial gases- americas , industrial gases- emea ( europe , middle east , and africa ) , industrial gases- asia , industrial gases- global , materials technologies , and corporate and other . the financial statements and analysis that follow discuss our results based on these operations . during the second quarter of fiscal year 2016 , we committed to exit the energy-from-waste ( efw ) business . the efw segment is presented as a discontinued operation . accordingly , prior year efw business segment information has been reclassified to conform to current year presentation . the company 's materials technologies business contains the electronic materials division ( emd ) and performance materials division ( pmd ) . we completed the spin-off of emd as versum materials , inc. on 1 october 2016. pmd is under a sales agreement subject to regulatory approval . 22 refer to note 26 , business segment and geographic information , to the consolidated financial statements for additional details on our reportable business segments and note 3 , materials technologies separation , for additional information on emd and pmd . 2016 in summary in 2016 , we delivered strong results driven by cost improvement actions despite weakness in the worldwide economy and currency headwinds . we made significant progress on our strategy by focusing on our core industrial gases business and have significantly improved our profitability as measured by operating margin , adjusted operating margin , and adjusted ebitda margin which all increased by at least 400 bp versus the prior year . during the year , we committed to exit our efw business and completed the spin-off of our electronic materials division as a publicly traded company on 1 october 2016. we improved our focus on safety , delivered on our cost reduction targets , and increased accountability by aligning pay with performance . these changes drove increased profitability as we delivered operating margins of 22.1 % , adjusted operating margins of 23.1 % , and adjusted ebitda margins of 34.4 % . also , eps of $ 6.94 increased 17 % from the prior year . on a non-gaap basis , eps of $ 7.55 increased 14 % . highlights for 2016 sales of $ 9,524.4 decreased 4 % , or $ 370.5. underlying sales growth of 2 % was more than offset by unfavorable currency and lower energy contractual cost pass-through to customers . underlying sales increased from higher volumes in industrial gases global and industrial gases asia . operating income of $ 2,106.0 increased 23 % , or $ 397.7 , primarily due to better cost performance . on a non-gaap basis , operating income of $ 2,198.5 increased 16 % , or $ 305.3. adjusted ebitda of $ 3,273.0 increased 10 % , or $ 288.9. income from continuing operations of $ 1,515.3 increased 18 % , or $ 230.6 , and diluted earnings per share from continuing operations of $ 6.94 increased 17 % , or $ 1.03. on a non-gaap basis , income from continuing operations of $ 1,647.8 increased 15 % , or $ 214.0 , and diluted earnings per share from continuing operations of $ 7.55 increased 14 % , or $ 0.95. a summary table of changes in diluted earnings per share , including a non-gaap reconciliation , is presented below . we entered into a sales agreement to sell the performance materials division of our materials technologies segment to evonik , which is subject to regulatory approval and other closing conditions . we completed the spin-off of the electronic materials division as versum materials , inc. on 1 october 2016. we committed to exit the energy-from-waste business . we increased our quarterly dividend by 6 % from $ .81 to $ .86 per share . this represents the 34 th consecutive year that we have increased our dividend payment . for a discussion of the challenges , risks , and opportunities on which management is focused , refer to our 2017 outlook below . 23 changes in diluted earnings per share attributable to air products replace_table_token_4_th 2017 outlook for 2017 , we intend to remain focused on key actions we can control to continue to drive earnings growth . we intend to accomplish this by bringing new industrial gas plant investments on-stream , making progress on the jazan sale of equipment project , and continuing to deliver on cost reduction actions . we expect continued weakness in new lng equipment orders primarily driven by low oil and natural gas prices . story_separator_special_tag severance and other benefits totaled $ 151.9 and related to the elimination of approximately 2,000 positions . asset and associated contract actions totaled $ 55.8 and related primarily to a plant shutdown in the corporate and other segment and the exit of product lines within industrial gases global and materials technologies segments . during the fourth quarter of 2014 , an expense of $ 12.7 ( $ 8.2 after-tax , or $ .04 per share ) was incurred relating to the elimination of approximately 50 positions . refer to note 5 , business restructuring and cost reduction actions , to the consolidated financial statements for additional details on these actions . pension settlement loss certain of our pension plans provide for a lump sum benefit payment option at the time of retirement , or for corporate officers , six months after the retirement date . pension settlements are recognized when cash payments exceed the sum of the service and interest cost components of net periodic pension cost of the plan for the fiscal year . we recognized $ 6.4 ( $ 4.1 after-tax , or $ .02 per share ) , $ 21.2 ( $ 13.7 after-tax , or $ .06 per share ) , and $ 5.5 ( $ 3.6 after-tax , or $ .02 per share ) of settlement charges in 2016 , 2015 , and 2014 , respectively . the settlement accelerated the recognition of a portion of actuarial losses deferred in accumulated other comprehensive loss primarily related to our u.s. supplementary pension plan . goodwill and intangible asset impairment charge during the fourth quarter of 2014 , we concluded that the goodwill and indefinite-lived intangible assets ( primarily acquired trade names ) associated with our latin america reporting unit of our industrial gases americas segment were impaired and recorded a noncash impairment charge of $ 310.1 ( $ 275.1 attributable to air products after-tax , or $ 1.27 per share ) . gain on previously held equity interest on 30 december 2014 , we acquired our partner 's equity ownership interest in a liquefied atmospheric industrial gases production joint venture in north america for $ 22.6 which increased our ownership from 50 % to 100 % . the transaction was accounted for as a business combination , and subsequent to the acquisition , the results are consolidated within our industrial gases americas segment . the assets acquired , primarily plant and equipment , were recorded at their fair value as of the acquisition date . the acquisition date fair value of the previously held equity interest was determined using a discounted cash flow analysis under the income approach . during the first quarter of 2015 , we recorded a gain of $ 17.9 ( $ 11.2 after-tax , or $ .05 per share ) as a result of revaluing our previously held equity interest to fair value as of the acquisition date . 28 other income ( expense ) , net items recorded to other income ( expense ) , net arise from transactions and events not directly related to our principal income earning activities . the detail of other income ( expense ) , net is presented in note 24 , supplemental information , to the consolidated financial statements . 2016 vs. 2015 other income ( expense ) , net of $ 58.1 increased $ 10.8 primarily due to lower foreign exchange losses , favorable contract settlements , and receipt of a government subsidy . the prior year included a gain of $ 33.6 ( $ 28.3 after-tax , or $ .13 per share ) resulting from the sale of two parcels of land . no other individual items were significant in comparison to the prior year . 2015 vs. 2014 other income ( expense ) , net of $ 47.3 decreased $ 5.5 and included a gain of $ 33.6 ( $ 28.3 after-tax , or $ .13 per share ) resulting from the sale of two parcels of land . the gain was partially offset by unfavorable foreign exchange impacts and lower gains on other sales of assets and emissions credits . no other individual items were significant in comparison to fiscal year 2014. interest expense replace_table_token_6_th 2016 vs. 2015 interest incurred decreased $ 4.2. the decrease primarily resulted from a stronger u.s. dollar on the translation of foreign currency interest of $ 6 , partially offset by a higher average debt balance of $ 2. the change in capitalized interest was driven by a decrease in the carrying value of projects under construction , primarily as a result of our exit from the energy-from-waste business . 2015 vs. 2014 interest incurred decreased $ 5.5. the decrease was driven by the impact of a stronger u.s. dollar on the translation of foreign currency interest of $ 12 , partially offset by a higher average debt balance of $ 7. the change in capitalized interest was driven by a higher carrying value in construction in progress . loss on extinguishment of debt on 30 september 2016 , in anticipation of the versum spin-off , versum issued $ 425.0 of notes to air products , who then exchanged these notes with certain financial institutions for $ 418.3 of air products ' outstanding commercial paper . the exchange resulted in a loss of $ 6.9 ( $ 4.3 after-tax , or $ .02 per share ) . in september 2015 , we made a payment of $ 146.6 to redeem 3,000,000 unidades de fomento ( uf ) series e 6.30 % bonds due 22 january 2030 that had a carrying value of $ 130.0 and resulted in a net loss of $ 16.6 ( $ 14.2 after-tax , or $ .07 per share ) . effective tax rate the effective tax rate equals the income tax provision divided by income from continuing operations before taxes . refer to note 23 , income taxes , to the consolidated financial statements for details on factors affecting the effective tax rate .
| discussion of consolidated results replace_table_token_5_th 2016 vs. 2015 sales of $ 9,524.4 decreased 4 % , or $ 370.5. underlying sales increased 2 % primarily due to higher volumes in industrial gases global and industrial gases asia , partially offset by lower volumes in all other segments . price was flat as increases in the industrial gases americas and industrial gases emea segments were offset by lower prices in industrial gases asia . underlying sales growth was more than offset by lower energy contractual cost pass-through to customers of 3 % and unfavorable currency of 3 % . 2015 vs. 2014 sales of $ 9,894.9 decreased 5 % , or $ 544.1. underlying sales were up 3 % from higher volumes of 2 % and higher pricing of 1 % . volumes increased primarily from new plant on-streams in industrial gases asia and base business growth in materials technologies . the favorable pricing was primarily driven by price increases in the industrial gases americas and materials technologies segments . currency unfavorably impacted sales by 5 % and lower energy and raw material contractual cost pass-through to customers decreased sales by 3 % . operating income and margin 2016 vs. 2015 on a gaap basis , operating income of $ 2,106.0 increased 23 % , or $ 397.7 , as lower operating costs of $ 271 , lower business restructuring and cost reduction actions of $ 174 , favorable pricing , net of energy , fuel , and raw material costs , of $ 84 , and lower pension settlement losses of $ 15 , were partially offset by unfavorable currency impacts of $ 46 , higher business separation costs of $ 45 , and lower volumes of $ 4. in addition , the prior year included a gain on land sales of $ 34 and a gain of $ 18 on a previously held equity interest .
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2014-04 states that an in substance repossession or foreclosure occurs , and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan , upon either : ( 1 ) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure ; or ( 2 ) the borrower conveying 73 story_separator_special_tag forward-looking statements this report contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. these statements can be identified by the fact that they do not relate strictly to historical or current facts and may include statements concerning , among other things , the anticipated economic and business environment in our service area and elsewhere , credit quality and other financial and business matters in future periods , our future results of operations and financial position , our business strategy and plans and our objectives and future operations . we also may make forward-looking statements in our other documents filed or furnished with the securities and exchange commission . in addition , our senior management may make forward-looking statements orally to analysts , investors , representatives of the media and others . our forward-looking statements are based on numerous assumptions , any of which could prove to be inaccurate and actual results may differ materially from those projected because of a variety of risks and uncertainties , including , but not limited to : 1 ) general economic conditions either nationally , internationally , or locally may be different than expected , and particularly , any event that negatively impacts the tourism industry in hawaii ; 2 ) unanticipated changes in the securities markets , public debt markets , and other capital markets in the u.s. and internationally ; 3 ) competitive pressures in the markets for financial services and products ; 4 ) the impact of legislative and regulatory initiatives , particularly the dodd-frank wall street reform and consumer protection act of 2010 ( the `` dodd-frank act '' ) ; 5 ) changes in fiscal and monetary policies of the markets in which we operate ; 6 ) the increased cost of maintaining or the company 's ability to maintain adequate liquidity and capital , based on the requirements adopted by the basel committee on banking supervision and u.s. regulators ; 7 ) actual or alleged conduct which could harm our reputation ; 8 ) changes in accounting standards ; 9 ) changes in tax laws or regulations or the interpretation of such laws and regulations ; 10 ) changes in our credit quality or risk profile that may increase or decrease the required level of our reserve for credit losses ; 11 ) changes in market interest rates that may affect credit markets and our ability to maintain our net interest margin ; 12 ) the impact of litigation and regulatory investigations of the company , including costs , expenses , settlements , and judgments ; 13 ) any failure in or breach of our operational systems , information systems or infrastructure , or those of our merchants , third party vendors and other service providers ; 14 ) any interruption or breach of security of our information systems resulting in failures or disruptions in customer account management , general ledger processing , and loan or deposit systems ; 15 ) changes to the amount and timing of proposed common stock repurchases ; and 16 ) natural disasters , public unrest or adverse weather , public health , and other conditions impacting us and our customers ' operations . given these risks and uncertainties , investors should not place undue reliance on forward-looking statements as a prediction of actual results . a detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included under the section entitled `` risk factors '' in part i of this report . words such as `` believes , '' `` anticipates , '' `` expects , '' `` intends , '' `` targeted , '' and similar expressions are intended to identify forward-looking statements but are not exclusive means of identifying such statements . we undertake no obligation to update forward-looking statements to reflect later events or circumstances , except as may be required by law . critical accounting policies our consolidated financial statements were prepared in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) and follow general practices within the industries in which we operate . the most significant accounting policies we follow are presented in note 1 to the consolidated financial statements . application of these principles requires us to make estimates , assumptions , and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . most accounting policies are not considered by management to be critical accounting policies . several factors are considered in determining whether or not a policy is critical in the preparation of the consolidated financial statements . these factors include among other things , whether the policy requires management to make difficult , subjective , and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions . the accounting policies which we believe to be most critical in preparing our consolidated financial statements are those that are related to the determination of the reserve for credit losses , fair value estimates , leased asset residual values , and income taxes . reserve for credit losses a consequence of lending activities is that we may incur credit losses . the amount of such losses will vary depending upon the risk characteristics of the loan and lease portfolio as affected by economic conditions such as rising interest rates and the financial performance of borrowers . the reserve for credit losses consists of the allowance for loan and lease losses ( the `` allowance '' ) and a reserve for unfunded commitments ( the `` unfunded reserve '' ) . story_separator_special_tag our third-party pricing service makes no representations or warranties that the pricing data provided to us is complete or free from errors , omissions , or defects . as a result , we have processes in place to monitor and periodically review the information provided to us by our third-party pricing service such as : 1 ) our third-party pricing service provides us with documentation by asset class of inputs and methodologies used to value securities . we review this documentation to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy . this documentation is periodically updated by our third-party pricing service . accordingly , transfers of securities within the fair value hierarchy are made if deemed necessary . 2 ) on a quarterly basis , management reviews the pricing information received from our third-party pricing service . this review process includes a comparison to non-binding third-party broker quotes , as well as a review of market-related conditions impacting the information provided by our third-party pricing service . we also identify investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades relative to historic levels , as well as instances of a significant widening of the bid-ask spread in the brokered markets . as of december 31 , 2015 and 2014 , management did not make adjustments to prices provided by our third-party pricing service as a result of illiquid or inactive markets . 3 ) on a quarterly basis , management also selects a sample of securities priced by the company 's third-party pricing service and reviews the significant assumptions and valuation methodologies used by the pricing service with respect to those securities . based on this review , management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted . 4 ) on an annual basis , to the extent available , we obtain and review independent auditor 's reports from our third-party pricing service related to controls placed in operation and tests of operating effectiveness . we did not note any significant control deficiencies in our review of the independent auditor 's reports related to services rendered by our third-party pricing service . 5 ) our third-party pricing service has also established processes for us to submit inquiries regarding quoted prices . periodically , we will challenge the quoted prices provided by our third-party pricing service . our third-party pricing service will review the inputs to the evaluation in light of the new market data presented by us . our third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis . based on the composition of our investment securities portfolio , we believe that we have developed appropriate internal controls and performed appropriate due diligence procedures to prevent or detect material misstatements . see note 21 to the consolidated financial statements for more information on our fair value measurements . leased asset residual values lease financing receivables include a residual value component , which represents the estimated value of leased assets upon lease expiration . our determination of residual value is derived from a variety of sources , including equipment valuation services , appraisals , and publicly available market data on recent sales transactions for similar equipment . the length of time until lease termination , the cyclical nature of equipment values , and the limited marketplace for re-sale of certain leased assets , are important variables considered in making this determination . we update our valuation analysis on an annual basis , or more frequently as warranted by events or circumstances . when we determine that the fair value is lower than the expected residual value at lease expiration , the difference is recognized as an asset impairment in the period in which the analysis is completed . income taxes we determine our liabilities for income taxes based on current tax regulation and interpretations in tax jurisdictions where our income is subject to taxation . currently , we file tax returns in seven federal , state and local domestic jurisdictions , and four foreign jurisdictions . in estimating income taxes payable or receivable , we assess the relative merits and risks of the appropriate tax treatment considering statutory , judicial , and regulatory guidance in the context of each tax position . accordingly , previously estimated liabilities are regularly reevaluated and adjusted through the provision for income taxes . changes in the estimate of income taxes payable or receivable occur periodically due to changes in tax rates , interpretations of tax law , the status of examinations being conducted by various taxing authorities , and newly enacted statutory , judicial and regulatory guidance that impact the relative merits and risks of each tax position . these changes , when they occur , may affect the provision for income taxes as well as current and deferred income taxes , and may be significant to our statements of income and condition . management 's determination of the realization of net deferred tax assets is based upon management 's judgment of various future events and uncertainties , including the timing and amount of future income , as well as the implementation of various tax planning strategies to maximize realization of the deferred tax assets . a valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized . as of december 31 , 2015 and 2014 , we carried a valuation 22 allowance of $ 3.9 million and $ 4.7 million , respectively , related to our deferred tax assets established in connection with our low-income housing investments .
| earnings summary net income for 2015 was $ 160.7 million , a decrease of $ 2.3 million or 1 % compared to 2014 . diluted earnings per share were $ 3.70 in 2015 , an increase of $ 0.01 or less than 1 % compared to 2014 . our return on average assets was 1.06 % in 2015 , a decrease of 8 basis points from 2014 , and our return on average shareholders ' equity was 14.82 % in 2015 , a decrease of 68 basis points from 2014 . our lower net income in 2015 was primarily due to the following : other noninterest expense was $ 71.0 million in 2015 , an increase of $ 15.6 million or 28 % compared to 2014. this increase was primarily due to a $ 9.5 million impairment charge recorded in the third quarter of 2015 on six aircraft which were previously on lease agreements . insurance expense increased by $ 2.2 million primarily due to a reserve reduction in the fourth quarter of 2014. in addition , we increased our investment in solar energy tax credit partnerships , which caused the related amortization expense to increase from $ 1.2 million in 2014 to $ 2.4 million in 2015. however , the federal and state tax benefits related to these partnership investments totaled $ 3.3 million in 2015 , resulting in a $ 0.9 million net benefit to overall net income . the tax benefits are recorded as a reduction to income tax expense . salaries and benefits expense was $ 192.0 million in 2015 , an increase of $ 8.9 million or 5 % compared to 2014 due in part to a $ 2.9 million increase in separation expense . commission expense increased by $ 1.7 million primarily due to an increase in both loan origination and refinance activity .
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we record uncertain tax positions in accordance with asc 740 on the basis of a two-step process in which ( 1 ) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and ( 2 ) for those tax positions that meet the more-likely-than-not recognition threshold , we recognize the largest amount of tax benefit that is more than story_separator_special_tag this document , including the following management 's discussion and analysis of financial condition and results of operations , contains forward-looking statements that are not purely historical regarding dexcom 's or its management 's intentions , beliefs , expectations and strategies for the future . these forward-looking statements fall within the meaning of the federal securities laws that relate to future events or our future financial performance . in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ will , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ intend , ” “ potential ” or “ continue ” or the negative of these terms or other comparable terminology . forward-looking statements are made as of the date of this report , deal with future events , are subject to various risks and uncertainties , and actual results could differ materially from those anticipated in those forward looking statements . the risks and uncertainties that could cause actual results to differ materially are more fully described under “ risk factors ” and elsewhere in this report and in our other reports filed with the sec . we assume no obligation to update any of the forward-looking statements after the date of this report or to conform these forward-looking statements to actual results . you should read the following discussion and analysis together with “ selected financial data ” in part ii , item 6 and our consolidated financial statements and related notes in part ii , item 8 of this annual report . overview we are a medical device company primarily focused on the design , development and commercialization of continuous glucose monitoring , or cgm , systems for use by people with diabetes and by healthcare providers . we received approval from the food and drug administration , or fda , and commercialized our first product in 2006. we launched our latest generation system , the dexcom g6 ® integrated continuous glucose monitoring system , or g6 , in 2018. unless the context requires otherwise , the terms “ we , ” “ us , ” “ our , ” the “ company , ” or “ dexcom ” refer to dexcom , inc. and its subsidiaries . we sell our reusable transmitter and receiver , collectively referred to as “ reusable hardware ” and disposable sensors through a direct sales force in the united states , canada and some countries in europe , and through distribution arrangements in the united states , and certain countries in africa , asia , europe , latin america , and the middle east , as well as australia , canada , and new zealand . most of our distributors stock our products and fulfill orders for our products from their inventory . we plan to develop future generations of technologies that are focused on improved performance and convenience and that will enable intelligent insulin administration . we also are aggressively exploring how to extend our offerings to other opportunities , including for people with type 2 diabetes that are non-insulin using , people with pre-diabetes , people who are obese , people who are pregnant , and people with diabetes in the hospital setting . we will continue to develop a networked platform with open architecture , connectivity and transmitters capable of communicating with other devices and software systems . we also intend to expand our efforts to accumulate cgm patient data and metrics and apply predictive modeling and machine learning to generate interactive cgm insights that can inform patient behavior . for discussion related to the results of operations and changes in financial condition for fiscal 2018 compared to fiscal 2017 refer to part ii , item 7. management 's discussion and analysis of financial condition and results of operations in our fiscal 2018 form 10-k , which was filed with the united states securities and exchange commission on february 21 , 2019. critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which we have prepared in accordance with u.s. gaap . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported revenue and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 1 to the consolidated financial statements in part ii , item 8 of this annual report , we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results . members of our senior management have discussed the development and selection of these critical accounting policies and their disclosure in this annual report with the audit committee of our board of directors . 63 revenue recognition we generate our revenue from the sale of our reusable hardware and disposable sensors . disposable sensors are sold separately . story_separator_special_tag see note 1 and note 3 to the consolidated financial statements in part ii , item 8 of this annual report for more information about fair value measurements . accounts receivable , net and related valuation accounts we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we evaluate the collectability of our accounts receivable based on a combination of factors . we regularly analyze customer accounts , review the length of time receivables are outstanding , review historical loss rates and assess current economic trends that may impact the level of credit losses in the future . our allowance for doubtful accounts has generally been adequate to cover our actual credit losses . however , since we can not reliably predict future changes in the financial stability of our customers , we may need to increase our reserves if the financial conditions of our customers deteriorate . excess and obsolete inventory inventory is valued at the lower of cost or net realizable value . we record adjustments to inventory for potentially excess , obsolete , or scrapped goods in order to state inventory at net realizable value . factors influencing these adjustments include inventories on hand and on order compared to estimated future usage and sales for existing and new products , as well as judgments regarding quality control testing data and assumptions about the likelihood of scrap and obsolescence . historically , our inventory reserves have been adequate to cover our actual losses . however , if actual product life cycles , product quality or market conditions differ from our assumptions , additional inventory adjustments that would increase cost of goods sold could be required . income taxes we estimate our income taxes based on the various jurisdictions where we conduct business . significant judgment is required in determining our worldwide income tax provision . the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations and the potential for future adjustment of our uncertain tax positions by the internal revenue service or other taxing jurisdictions . while we believe we have appropriate support for the positions taken on our tax returns , we regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes . we continually assess the likelihood and amount of potential adjustments and adjust the income tax provision , income taxes payable , and deferred taxes in the period in which the facts that give rise to a revision become known . we use the asset and liability approach to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities . deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized . significant judgment is required to evaluate the need for a valuation allowance against deferred tax assets . we review all available positive and negative evidence , including projections of pre-tax book income , earnings history , and reliability of forecasting . a valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized . as of december 31 , 2019 , we have maintained a full valuation allowance on our deferred tax assets since inception based on our historical losses and the uncertainty of generating future taxable income to utilize our loss and credit carryforwards . a future release of our valuation allowance will result in a material tax benefit recognized in the quarter of the release . we recognize and measure benefits for uncertain tax positions using a two-step approach . the first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained upon audit , including resolution of any related appeals or litigation processes . for tax positions that are more likely than not of being sustained upon audit , the second step is to measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon settlement . significant judgment is required to evaluate uncertain tax positions and is based upon a number of factors , including changes in facts or circumstances , changes in tax law , correspondence with tax authorities during the course of audits and effective settlement of audit issues . changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in the period in which we make the change , which could have a material impact on our effective tax rate and operating results . 65 loss contingencies we are subject to certain legal proceedings , as well as demands , claims and threatened litigation that arise in the normal course of our business . we review the status of each significant matter quarterly and assess our potential financial exposure . if the potential loss from a claim or legal proceeding is considered probable and the amount can be reasonably estimated , we record a liability and an expense for the estimated loss and disclose it in our consolidated financial statements if it is significant . if we determine that a loss is possible and the range of the loss can be reasonably determined , we do not record a liability or an expense but we disclose the range of the possible loss . significant judgment is required in the determination of whether a potential loss is probable , reasonably possible , or remote as well as in the determination of whether a potential exposure is reasonably estimable . we base our judgments on the best information available at the time .
| results of operations financial overview replace_table_token_3_th * = not meaningful 66 revenue , cost of sales and gross profit replace_table_token_4_th we expect that revenues we generate from the sales of our products will fluctuate from quarter to quarter . we typically experience seasonality , with lower sales in the first quarter of each year compared to the immediately preceding fourth quarter . this seasonal sales pattern relates to u.s. annual insurance deductible resets and unfunded flexible spending accounts . cost of sales includes direct labor and materials costs related to each product sold or produced , including assembly , test labor and scrap , as well as factory overhead supporting our manufacturing operations . factory overhead includes facilities , material procurement and control , manufacturing engineering , quality assurance , supervision and management . these costs are primarily salary , fringe benefits , share-based compensation , facility expense , supplies and purchased services . all of our manufacturing costs are included in cost of sales . fiscal 2019 compared to fiscal 2018 total revenue increased $ 444.4 million or 43 % for the twelve months ended december 31 , 2019 compared to the twelve months ended december 31 , 2018 . the 2019 revenue increase was primarily driven by increased sales volume of our disposable sensors due to the continued growth of our worldwide customer base , partially offset by pricing pressure due to the evolution of our channel strategy and product mix . disposable sensor and other revenue comprised approximately 78 % of total revenue and reusable hardware revenue comprised approximately 22 % of total revenue for the twelve months ended december 31 , 2019 . disposable sensor and other revenue comprised approximately 75 % of total revenue and reusable hardware revenue comprised approximately 25 % of total revenue for the twelve months ended december 31 , 2018 .
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on february 9 , 2012 , the board of directors approved an amendment to the 2010 plan to increase the number of shares authorized for purchase by 4,800 shares , thereby providing for the purchase of up to 49,014 shares of the company 's common stock . on july 30 , 2013 , the board of directors approved an amendment to the 2010 plan to increase the number of shares authorized for purchase by 1,715,851 shares , thereby providing for the purchase of up to 1,764,865 shares of the company 's common story_separator_special_tag the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed here . factors that could cause or contribute to such differences include , but are not limited to , those discussed in this section as well as factors described in part i , item 1arisk factors. overview we are a biopharmaceutical company focused on the discovery and development of innovative treatments for rare inherited diseases involving the liver and for cancers that are genetically defined . we are using our rna interference ( rnai ) technology platform to build a broad pipeline in these therapeutic areas . in both rare diseases and oncology , we are pursuing targets that have historically been difficult to inhibit using conventional approaches , but where we believe connections between targets and diseases are well understood and documented . we aim to discover , develop and commercialize these novel therapeutics either on our own or in collaboration with pharmaceutical partners . in indications such as rare diseases in which a small sales force will suffice , we seek to retain substantially all commercial rights in key markets . in oncology and other more prevalent disease areas , we may partner our products while seeking to retain significant portions of the commercial rights in north america . in the rare disease field , we are developing a proprietary treatment , dcr-ph1 , for the rare and serious inherited disorder primary hyperoxaluria 1 ( ph1 ) . we seek to begin clinical trials of dcr-ph1 in 2015. we also have discovery and early development programs against a series of additional disease targets in the liver . in oncology , we are currently directing our development efforts towards our proprietary product candidate dcr-m1711 for the treatment of myc-related cancers , including hepatocellular carcinoma ( hcc ) , which we believe represents 85 to 90 percent of primary liver cancer . we submitted an investigational new drug application for dcr-m1711 for the treatment of hcc to the u.s. food and drug administration in the first quarter of 2014 and have received from the fda a non-objection letter to initiate the phase 1 development . we intend to begin clinical trials of dcr-m1711 in the first half of 2014. as part of our collaboration with kyowa hakko kirin co. , ltd. ( khk ) , a global pharmaceutical company , we are developing a product candidate that targets the oncogene kras , which is frequently mutated in numerous major cancers , including non-small cell lung cancer , colorectal cancer , and pancreatic cancer . khk is responsible for global development of the kras program , including all development expenses . for the kras product candidate , we retain an option to co-promote in the u.s. for an equal share of the profits from u.s. net sales . we are also developing a product candidate targeting another oncogene in collaboration with khk . for each product candidate in our collaboration with khk , we have the potential to receive clinical , regulatory and commercialization milestone payments of up to $ 110.0 million and royalties on net sales of each such product candidate . we expect that our strategy to partner the development of product candidates will help us fund the costs of clinical development and enable us to diversify risk across a number of programs . since our inception in october 2006 , we have devoted substantial resources to the research and development of dsirna molecules and drug delivery technologies and the protection and enhancement of our intellectual property estate . we have no products approved for sale and all of our revenue to date has been collaboration revenue or government grant revenue . to date , we have funded our operations primarily through the recent initial public offering of our common stock , previous private placements of preferred stock and convertible debt securities , from research funding , license fees , option exercise fees and preclinical payments under our research collaboration and license agreement with khk and from a government grant . in addition , we have borrowed under a secured term loan from hercules ( hercules loan ) to fund our operations . more particularly , since our inception and through december 31 , 2013 , we have raised an aggregate of $ 140.5 million to fund our operations , of which $ 110.5 million was from the sale of preferred stock and convertible debt securities ( including $ 3.0 million from a bridge loan financing that closed in june 2013 ( 2013 bridge note financing ) , $ 17.5 million was through our collaboration and license agreement with khk , $ 0.5 million was from a federal government 73 grant for our qualifying therapeutic discovery project in november 2010 and $ 12.0 million was from borrowings under the hercules loan . as of december 31 , 2013 , our cash and cash equivalents were $ 46.6 million and we also had $ 0.3 million in assets held in restriction . on february 4 , 2014 , we completed the initial public offering of our common stock , in which we issued and sold a total of 6,900,000 shares of common stock , including 900,000 shares sold pursuant to the exercise in full by the underwriters of an option to purchase additional shares , at a public offering price of $ 15.00 per share . story_separator_special_tag the core dsirna patent ( u.s. 8,084,599 ) , titled methods and compositions for the specific inhibition of gene expression by double-stranded rna , describes rna structures having a 25 to 30 nucleotides sense strand , a blunt end at the 3 ' end of the sense strand and a one to four nucleotides overhang at the 3 ' end of the antisense strand . the expiration date of this patent is july 17 , 2027. pursuant to the terms of the agreement , we paid coh a one-time , non-refundable license fee and issued shares of our common stock to coh and a co-inventor of the core dsirna patent . coh is entitled to receive milestone payments in an aggregate amount within the range of $ 5.0 million to $ 10.0 million upon achievement of certain clinical and regulatory milestones . coh is further entitled to receive royalties at a low single-digit percentage of any net sale revenue of the licensed products sold by us and our sublicensees . if we sublicense the licensed patent rights to a third party , coh has the right to receive a double digit percentage of sublicense income , the percentage of which decreases after dicerna has expended $ 12.5 million in development and commercialization costs . we are also obligated to pay coh an annual license maintenance fee , which may be credited against any royalties due to coh in the same year , and reimburse coh for expenses associated with the prosecution and maintenance of the license patent rights . the license agreement will remain in effect until the expiration of the last to expire of the patents or copyrights licensed under the agreement . we have not included our obligations to make future milestone payments on our balance sheet because the achievement and timing of the related milestones is not probable and estimable . in september 2013 , we entered into a commercial license agreement with plant bioscience limited ( pbl ) , pursuant to which pbl has granted a license to us for certain of its u.s. patents and patent applications to research , discover , develop , manufacture , sell , import and export , products incorporating one or more short rna molecules ( srms ) . 75 we have paid pbl a one-time , non-refundable signature fee and will pay pbl a nomination fee for any additional srms nominated by us under the agreement . we are further obligated to pay pbl milestone payments upon achievement of certain clinical and regulatory milestones . in addition , pbl is entitled to receive royalties on any net sale revenue of any licensed product candidates sold by us . financial operations overview revenue our revenue to date has been generated primarily through research funding , license fees , option exercise fees and preclinical development payments under our research collaboration and license agreement with khk and a government grant . we have not generated any commercial product revenue . for each product candidate under our research collaboration and license agreement with khk , we are also entitled to receive clinical , regulatory and commercialization milestone payments of up to $ 110.0 million and royalties on net sales of such product candidate . we did not receive any royalty payments as of december 31 , 2013. the following table summarizes the sources of our revenue for the years ended december 31 , 2011 , 2012 and 2013 ( in thousands ) . replace_table_token_2_th in the future , we may generate revenue from a combination of research and development payments , license fees and other upfront payments , milestone payments , product sales and royalties in connection with our collaboration with khk or future collaborations and licenses . we expect that any revenue we generate will fluctuate in future periods as a result of the timing of our or a collaborator 's achievement of preclinical , clinical , regulatory and commercialization milestones , if at all , the timing and amount of any payments to us relating to such milestones and the extent to which any of our product candidates are approved and successfully commercialized by us or a collaborator . if we , khk or any future collaborator fails to develop product candidates in a timely manner or obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . research and development expenses research and development expenses consist of costs associated with our research activities , including discovery and development of our dsirna molecules and drug delivery technologies and our research activities under our research collaboration and license agreement with khk . our research and development expenses include : direct research and development expenses incurred under arrangements with third parties , such as contract research organizations , contract manufacturing organizations , consultants and our scientific advisory board ; platform-related lab expenses , including lab supplies , license fees and costs of consultants ; employee-related expenses , including salaries , benefits and stock-based compensation expense ; and facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment and laboratory and other supplies . 76 we expense research and development costs as they are incurred . we account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received . a significant portion of our research and development costs are not tracked by project as they benefit multiple projects or our technology platform and because none of our programs are in clinical development . the following table summarizes our research and development expenses incurred during the years ended december 31 , 2011 , 2012 and 2013 ( in thousands ) .
| general and administrative expenses general and administrative expenses were $ 4.7 million for the twelve months ended december 31 , 2012 and $ 5.8 million for the twelve months ended december 31 , 2013. the increase of $ 1.1 million , or 24 percent compared to the twelve months ended december 31 , 2012 , was primarily due to a $ 0.6 million increase in employee-related expenses and a $ 0.5 million increase in professional fees indirectly related to the initial public offering of our common stock . we expect general and administrative expenses to increase in the future as we expand our operating activities and incur additional costs associated with being a publicly-traded company . other expense other expense was $ 0.9 million for the twelve months ended december 31 , 2012 and $ 1.1 million for the twelve months ended december 31 , 2013. the increase of $ 0.2 million , or 31 percent compared to the twelve months ended december 31 , 2012 , was primarily due to the loss on extinguishment of debt in 2013 of $ 0.3 million and a decrease in expense related to the remeasurement of the warrants exercisable for series a , series b and series c preferred stock of $ 0.3 million , which were partially offset by a decrease of interest expense by $ 0.4 million .
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enterprise : the enterprise segment includes rugged and enterprise-grade mobile computers and tablets , laser/imaging/radio frequency identification ( “ rfid ” ) based data capture products , wireless local area network ( “ wlan ” ) and integrated digital enhanced network ( “ iden ” ) infrastructure , software and applications that are associated with these products . enterprise service revenues include maintenance , integration , and device and network management . change in presentation as of january 1 , 2013 , we restructured our regions by aligning the middle east go-to-market team with asia pacific . accordingly , we now report net sales for the following four geographic regions : north america ; latin america ; europe and africa ( `` ea '' ) ; and asia pacific and middle east ( `` apme '' ) . we have updated all periods presented to reflect this change in presentation . what were our 2013 financial results ? net sales were $ 8.7 billion in both 2013 and 2012 . operating earnings were $ 1.2 billion in 2013 , compared to $ 1.3 billion in 2012 . operating margin was 14.0 % of net sales in 2013 , compared to 14.4 % of net sales in 2012 . earnings from continuing operations were $ 1.1 billion , or $ 4.06 per diluted common share , including a $ 1.25 tax benefit , in 2013 , compared to $ 878 million , or $ 2.95 per diluted common share , in 2012 . cash from operating activities was $ 944 million in 2013 , compared to $ 1.1 billion in 2012 . we provided $ 1.7 billion in cash to shareholders through share repurchases and $ 292 million in cash dividends during 2013 . we issued $ 600 million of 3.50 % senior notes due 2023 in the first quarter of 2013. what were the financial results for our two segments in 2013 ? in the government segment : net sales were $ 6.0 billion in 2013 , an increase of $ 41 million , or 1 % , compared to $ 6.0 billion in 2012 . on a geographic basis , net sales increased in north america , latin america and ea and declined in apme compared to 2012 . operating earnings were $ 979 million in 2013 , compared to $ 965 million in 2012 . operating margin improved in 2013 to 16.2 % from 16.1 % in 2012 . in the enterprise segment : net sales were $ 2.7 billion in 2013 , a decrease of $ 43 million , or 2 % , compared to $ 2.7 billion in 2012 . on a geographic basis , net sales declined in north america and latin america and increased in ea and apme , compared to 2012 . operating earnings were $ 236 million in 2013 , compared to $ 291 million in 2012 . operating margin decreased in 2013 to 8.9 % from 10.7 % in 2012 . what were our major accomplishments in 2013 ? in our government segment : sales , operating earnings , and operating margins increased as compared to 2012. we saw strong growth in infrastructure and services in both our astro and tetra product lines , driven by one of our best “ large deal ” years in our history with anticipated deployments leading to long-term revenue streams over multiple-year rollouts . one of these large deals was our first public safety lte contract with a country outside the u.s. while our pcr product line revenues declined in 2013 , coming off a record year driven by narrowbanding in 2012 , we 've expanded the portfolio to include several digital radio platforms , complete with multi-site coverage . we also 26 acquired twisted pair solutions during the fourth quarter , which further extends our mototrbo radio to commercial smartphone device users as well . one of the key long-term growth drivers for the pcr market is the majority of the 40 million radios deployed in the global market that are still analog technology . we are leading that transition to digital with the most comprehensive portfolio in the pcr market . in 2013 , we made progress expanding our services business and , in particular , lifecycle management contracts . these agreements provide customers with the ability to stay current on the latest software versions with routine upgrades . we have signed almost 200 of these agreements over the past three years . these contracts tend to be long in duration , with approximately 40 % of the new astro agreements we signed this year to be completed over at least ten years . we had one of our best years in tetra in ea , driven by the continued expansion of our infrastructure footprint with this mission-critical standard . we signed a number of large deals including : ( i ) a multi-year support contract for airwave 's critical communications network , one of the largest tetra networks in the world , delivering voice and data services to the uk 's emergency services and ( ii ) a $ 187 million public safety contract with libya to provide country-wide coverage . in our enterprise segment : the core product lines stabilized and returned to growth over the second half of the year as we grew backlog and saw increased spending in the industry . our focus this year has been on improving the business operationally and financially , with a stronger portfolio with investments in the android operating platform and new devices . as android has emerged , we are well positioned with a truly enterprise-grade portfolio , complete with our own motorola extensions product to enhance , integrate and secure the android operating system . we have four new models running on the current version of android and our mc67 is available on both windows and android . we began to see traction at the end of the year within our expansion portfolio , including the mc40 , sb1 and mp6000 as deals move from trial to adoption . story_separator_special_tag our effective tax rate in 2012 was lower than the u.s. statutory tax rate of 35 % primarily due to : ( i ) a $ 60 million tax benefit related to the reversal of a significant portion of the valuation allowance established on certain foreign deferred tax assets and ( ii ) a $ 13 million reduction in unrecognized tax benefits for facts that then indicated the extent to which certain tax positions were more-likely-than-not of being sustained . our effective tax rate will change from period to period based on non-recurring events , such as the settlement of income tax audits , changes in valuation allowances and the tax impact of significant unusual or extraordinary items , as well as recurring factors including changes in the geographic mix of income and effects of various global income tax strategies . earnings from continuing operations after taxes , we had net earnings from continuing operations of $ 1.1 billion , or $ 4.06 per diluted share , in 2013 , compared to net earnings from continuing operations of $ 878 million , or $ 2.95 per diluted share , in 2012 . the increase in net earnings from continuing operations in 2013 , as compared to 2012 , was primarily driven by : ( i ) a lower effective tax rate due to the $ 337 million of net tax benefit associated with foreign tax credits realized upon repatriation of foreign earnings and ( ii ) decreased defined benefit expenses of over $ 100 million , partially offset by : ( i ) a $ 107 million decrease in gross margin , ( ii ) a $ 83 million increase in reorganization charges , and ( iii ) a $ 47 million increase in net interest expense . the increase in earnings per diluted share was driven by higher net earnings and the reduction in shares outstanding as a result of our share repurchase program . earnings from discontinued operations in 2013 , we had no earnings from discontinued operations , compared to $ 3 million of earnings from discontinued operations , or $ 0.01 per diluted share , in 2012 . the earnings from discontinued operations in 2012 were primarily driven by a purchase price adjustment of a previously disposed business , offset by a loss related to the exit of the amateur , marine and airband business . results of operations— 2012 compared to 2011 net sales net sales were $ 8.7 billion in 2012 , a 6 % increase compared to net sales of $ 8.2 billion in 2011. the increase in net sales reflects : ( i ) a $ 631 million , or 12 % increase in net sales in the government segment driven by broad based growth across the product portfolio and ( ii ) a $ 136 million , or 5 % decrease in net sales in the enterprise segment driven by the anticipated decline in iden sales , reduced information technology spending driven by macroeconomic uncertainty , and unfavorable foreign currency fluctuations . 31 gross margin gross margin was $ 4.3 billion , or 50.0 % of net sales in 2012 , compared to $ 4.1 billion , or 50.5 % of net sales , in 2011. the gross margin increase was driven by the 12 % increase in net sales in our government segment , offset by lower gross margin in our enterprise segment , primarily related to a decline in volume , including the decline in iden sales , and unfavorable foreign currency fluctuations . the decrease in gross margin as a percent of sales reflects higher gross margin percent from product sales and lower gross margin percent from service sales . the decline in gross margin percentage from service sales primarily relates to : ( i ) the expansion of managed services , which generally have lower gross margin than our traditional service contracts and ( ii ) unfavorable foreign currency fluctuations . selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses increased 3 % to $ 2.0 billion , or 22.6 % of net sales in 2012 , compared to $ 1.9 billion , or 23.2 % of net sales in 2011. the increase in sg & a expenses is driven by an increase in pension and employee benefit-related expenses , as well as the psion acquisition that closed in the fourth quarter of 2012. research and development expenditures r & d expenditures increased 4 % to $ 1.1 billion , or 12.4 % of net sales in 2012 , compared to $ 1.0 billion , or 12.6 % of net sales in 2011. the increase in r & d expenditures reflects higher r & d expenditures in both segments , primarily due to : ( i ) an increase in employee benefit-related expenses , and ( ii ) increased investment in next-generation technology , including strategic acquisitions . other charges we recorded net charges of $ 54 million in other charges in 2012 , compared to net charges of $ 341 million in 2011. the charges in 2012 included : ( i ) $ 41 million of net reorganization of business charges and ( ii ) $ 29 million of charges relating to amortization of intangibles , partially offset by $ 16 million of income related to a legal matter . the charges in 2011 included : ( i ) $ 200 million of charges relating to the amortization of intangibles , ( ii ) $ 88 million of net charges relating to legal matters , ( iii ) $ 52 million of net reorganization of business charges , and ( iv ) $ 10 million related to a long term financing receivable reserve , partially offset by $ 9 million in gains related to pension plan adjustments . the net reorganization of business charges are discussed in further detail in the “ reorganization of businesses ” section .
| results of operations replace_table_token_3_th * amounts attributable to motorola solutions , inc. common shareholders . * * percentages may not add due to rounding . 29 geographic market sales measured by the locale of the end customer as a percent of total net sales for 2013 , 2012 and 2011 are as follows : geographic market sales by locale of end customer replace_table_token_4_th results of operations— 2013 compared to 2012 net sales net sales were $ 8.7 billion in both 2013 and 2012 . the flat net sales reflect : ( i ) a $ 41 million , or 1 % increase in net sales in the government segment driven by growth in our infrastructure and deployment services , and ( ii ) a $ 43 million , or 2 % decrease in net sales in the enterprise segment driven by the anticipated decline in iden infrastructure sales , partially offset by incremental net sales due to the acquisition of psion . gross margin gross margin was $ 4.2 billion , or 48.8 % of net sales in 2013 , compared to $ 4.3 billion , or 50.0 % of net sales , in 2012 . the decrease in gross margin percentage was driven primarily by : ( i ) a mix change in the government segment where infrastructure and deployment services growth was offset by radio declines , ( ii ) lower iden sales , which typically have higher margins , and ( iii ) higher psion sales in its first full year since being acquired in the fourth quarter of 2012 , which typically have lower margins than other core product lines in the enterprise segment . selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses decreased 6 % to $ 1.8 billion , or 21.1 % of net sales in 2013 , compared to $ 2.0 billion , or 22.6 % of net sales in 2012 .
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the determination of the existence of impairment involves judgments that are subjective in nature and may require the use of estimates in forecasting future results and cash flows related to an asset or group of assets . in making this determination , we use certain assumptions , including estimates of future cash flows expected to be generated by these assets , which are based on additional assumptions such as asset utilization , the length of service that assets will be used in our operations , and estimated salvage values . see note 8 - property , plant , and equipment , net in the notes to the consolidated financial statements for additional disclosures related to our long-lived assets . income taxes in accordance with the authoritative guidance on accounting for income taxes , we recognize income taxes using an asset and liability approach . this approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . the measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated . 39 the authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur based on an evaluation of all available evidence , both positive and negative , and the relative weight of the evidence . with the exception of the gains resulting from the completed photovoltaics asset sale , we have determined that at this time it is more likely than not that deferred tax assets attributable to all other items will not be realized , primarily due to uncertainties related to our ability to utilize our net operating loss carryforwards before they expire . accordingly , we have established a valuation allowance for such deferred tax assets which we do not expect to realize . if there is a change in our ability to realize our deferred tax assets for which a valuation allowance has been established , then our tax valuation allowance may decrease in the period in which we determine that realization is more likely than not . likewise , if we determine that it is not more likely than not that deferred tax assets will be realized , then a valuation allowance may be established for such deferred tax assets and our tax provision may increase in the period in which we make the determination . see note 11 - income and other taxes in the notes to the consolidated financial statements for additional information related to our income taxes . revenue recognition revenue is recognized upon shipment , provided persuasive evidence of a contract exists , the price is fixed , the product meets our customer 's specifications , title and ownership have transferred to the customer , and there is reasonable assurance of collection of the sales proceeds . the majority of our products have shipping terms that are free on board or free carrier alongside ( fca ) shipping point , which means that we fulfill our delivery obligation when the goods are handed over to the freight carrier at our shipping dock . this means the customer typically bears all costs and risks of loss or damage to the goods from that point . in certain cases , we ship our products cost insurance and freight . under this arrangement , revenue is recognized under fca shipping point terms , but we pay ( and invoice the customer ) for the cost of shipping and insurance to the customer 's designated location . we account for shipping and related transportation costs by recording the charges that are invoiced to customers as revenue , with the corresponding cost recorded as cost of revenue . in those instances where inventory is maintained at a consigned location , revenue is recognized only when our customer pulls product for use and after title and ownership has transferred to the customer . any warranty cost and remaining obligations that are inconsequential or perfunctory are accrued when the corresponding revenue is recognized . distributors . we use a number of distributors around the world and recognize revenue upon shipment of product to these distributors . title and risk of loss pass to the distributors upon shipment , and our distributors are contractually obligated to pay us on standard commercial terms , just like our other direct customers . we do not sell to our distributors on consignment and , except in the event of product discontinuance , do not give distributors a right of return . contract manufacturers . prior to certain customers accepting product that is manufactured at one of our contract manufacturers , these customers require that they first qualify the product and manufacturing processes at our contract manufacturer . the customers ' qualification process determines whether the product manufactured at our contract manufacturer achieves their quality , performance , and reliability standards . after a customer completes the initial qualification process , we receive approval to ship qualified product to that customer . as part of the manufacturing process at our contract manufacturers , the finished product is tested prior to shipment to the customer using the same criteria that our customer uses to test product it receives . revenue is recognized upon shipment of customer-qualified product , provided persuasive evidence of a contract exists , the price is fixed , the product meets our customer 's specifications , title and ownership have transferred to the customer , and there is reasonable assurance of collection of the sales proceeds . product warranty reserves we provide our customers with limited rights of return for non-conforming shipments and warranty claims for certain products . story_separator_special_tag pursuant to asc 450 , contingencies , we make estimates of product warranty expense using historical experience rates as a percentage of revenue and accrue estimated warranty expense as a cost of revenue . we estimate the costs of our warranty obligations based on historical experience of known product failure rates and anticipated rates of warranty claims , use of materials to repair or replace defective products , and service delivery costs incurred in correcting product issues . in addition , from time to time , specific warranty accruals may be made if unforeseen technical problems arise . should our actual experience relative to these factors differ from our estimates , we may be required to record additional warranty reserves . alternatively , if we provide more reserves than needed , we may reverse a portion of such provisions in future periods . see note 9 - accrued expenses and other current liabilities in the notes to the consolidated financial statements for additional disclosures related to our product warranty reserves . 40 stock-based compensation stock-based compensation expense is measured at the stock option grant date , based on the fair value of the award , and is recorded to cost of revenue ; sales , general , and administrative ; and research and development expense based on an employee 's responsibility and function over the requisite service period . we use the black-scholes option-pricing model and the straight-line attribution approach to determine the fair value of stock-based awards in accordance with asc 718 , compensation . this option-pricing model requires the input of subjective assumptions , including the option 's expected life , the price volatility of the underlying stock , risk-free interest rate and expected forfeitures . expected term represents the period that stock-based awards are expected to be outstanding and is determined based on historical experience of similar awards , giving consideration to the contractual terms of the stock-based awards , vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards . the expected stock price volatility is based on our historical stock prices . we are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates . we use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest . if we use different assumptions for estimating stock-based compensation expense in future periods or if actual forfeitures differ materially from our estimated forfeitures , the change in our non-cash stock-based compensation expense could adversely affect our results of operations . see note 13 - equity in the notes to the consolidated financial statements for additional disclosures related to our stock-based compensation . litigation contingencies we are subject to various legal proceedings , claims , and litigation , either asserted or unasserted , that arise in the ordinary course of business . while the outcome of these matters is currently not determinable , we do not expect the resolution of these matters will have a material adverse effect on our business , financial position , results of operations , or cash flows . however , the results of these matters can not be predicted with certainty . professional legal fees are expensed when incurred . we accrue for contingent losses when such losses are probable and reasonably estimable . in the event that estimates or assumptions prove to differ from actual results , adjustments are made in subsequent periods to reflect more current information . should we fail to prevail in any legal matter or should several legal matters be resolved against the company in the same reporting period , then the financial results of that particular reporting period could be materially affected . see note 12 - commitments and contingencies in the notes to our consolidated financial statements for disclosures related to our legal proceedings . asset retirement obligations pursuant to asc 410 , asset retirement and environmental obligations , an aro is recorded when there is a legal obligation associated with the retirement of a tangible long-lived asset and the fair value of the liability can reasonably be estimated . upon initial recognition of an asset retirement obligation , a company increases the carrying amount of the long-lived asset by the same amount as the liability . over time , the liabilities are accreted for the change in their present value through charges to operations costs . the initial capitalized costs are depleted over the useful lives of the related assets through charges to depreciation , depletion , and or amortization . if the fair value of the estimated aro changes , an adjustment is recorded to both the aro liability and the asset retirement cost . revisions in estimated liabilities can result from revisions of estimated inflation rates , escalating retirement costs , and changes in the estimated timing of settling asset retirement obligations . we have known conditional asset retirement conditions , such as certain asset decommissioning and restoration of rented facilities to be performed in the future . see note 12 - commitments and contingencies in the notes to the consolidated financial statements for additional disclosures related to our aros . * * * the above listing is not intended to be a comprehensive list of all of our accounting policies . in many cases , u.s. gaap specifically dictates the accounting treatment of a particular transaction . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . for a complete discussion of our accounting policies , recently adopted accounting pronouncements , and other required u.s. gaap disclosures , we refer you to the accompanying footnotes to our consolidated financial statements in this annual report . 41 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; text-decoration : underline ; '' > interest income , net during the
| results of operations the following table sets forth our consolidated statements of operations data expressed as a percentage of revenue : replace_table_token_5_th 42 comparison of financial results for the fiscal years ended september 30 , 2016 and 2015 replace_table_token_6_th revenue for the fiscal year ended september 30 , 2016 , revenue increased 12.6 % compared to the prior year driven by significantly higher sales of our catv products primarily to u.s. customers . gross profit our cost of revenue consists of raw materials , compensation expense including non-cash stock-based compensation expense , depreciation expense and other manufacturing overhead costs , expenses associated with excess and obsolete inventories , and product warranty costs . historically , our cost of revenue as a percentage of revenue , which we refer to as our gross margin , has fluctuated significantly due to product mix , manufacturing yields and sales volumes , and inventory and specific product warranty charges . consolidated gross margins were 33.6 % and 35.1 % for the years ended september 30 , 2016 and 2015 , respectively . stock-based compensation expense within cost of revenue totaled approximately $ 0.3 million during the fiscal years ended september 30 , 2016 and 2015 . for the fiscal year ended september 30 , 2016 , gross margins decreased when compared to the prior year . the decrease in gross margins for the fiscal year ended september 30 , 2016 was primarily due to lower absorption of manufacturing overhead costs . 43 selling , general and administrative ( sg & a ) sg & a consists primarily of compensation expense including non-cash stock-based compensation expense related to executive , finance , and human resources personnel , as well as sales and marketing expenses , professional fees , legal and patent-related costs , and other corporate-related expenses . stock-based compensation expense within sg & a totaled approximately $ 1.4 million and $ 2.8 million during the fiscal years ended september 30 , 2016 and 2015 , respectively .
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the company 's subsidiary , westamerica bank ( the “ bank ” ) maintains a loan review department which reports directly to the audit committee of the board of directors . the loan review story_separator_special_tag the following discussion addresses information pertaining to the financial condition and results of operations of westamerica bancorporation and subsidiaries ( the “ company ” ) that may not be otherwise apparent from a review of the consolidated financial statements and related footnotes . it should be read in conjunction with those statements and notes found on pages 48 through 90 , as well as with the other information presented throughout this report . critical accounting policies the company 's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america and follow general practices within the banking industry . application of these principles requires the company to make certain estimates , assumptions , and judgments that affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions , and judgments are based on information available as of the date of the financial statements ; accordingly , as this information changes , the financial statements could reflect different estimates , assumptions , and judgments . certain accounting policies inherently have a greater reliance on the use of estimates , assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value , when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment writedown or valuation reserve to be established , or when an asset or liability needs to be recorded contingent upon a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources , when available . the most significant accounting policies followed by the company are presented in note 1 to the consolidated financial statements . these policies , along with the disclosures presented in the other financial statement notes and in this discussion , provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has identified the allowance for loan losses accounting to be the accounting area requiring the most subjective or complex judgments , and as such could be most subject to revision as new information becomes available . a discussion of the factors affecting accounting for the allowance for loan losses and purchased loans is included in the “ loan portfolio credit risk ” discussion below . story_separator_special_tag margin : 0pt 0 '' > net interest and loan fee income ( fte ) the company 's primary source of revenue is net interest income , or the difference between interest income earned on loans and investment securities and interest expense paid on interest-bearing deposits and other borrowings . components of net interest and loan fee income ( fte ) replace_table_token_6_th comparing 2018 with 2017 , net interest and loan fee income increased $ 13.4 million due to higher average balances of investments ( up $ 270 million ) and higher yield on interest earning assets ( up 0.03 % ) , offset by lower average balances of loans ( down $ 106 million ) . the fte adjustment was lower in 2018 compared with 2017 mainly due to the reduced federal corporate tax rate as a result of enactment of the act . comparing 2017 with 2016 , net interest and loan fee income increased $ 2.6 million mostly due to higher average balances of investments ( up $ 255 million ) and higher yield on taxable investments ( up 0.13 % ) and interest-bearing cash ( up 0.59 % ) , offset by lower average balances of loans ( down $ 109 million ) and lower net yield on those loans ( down 0.16 % ) . the yield on earning assets ( fte ) was 3.02 % in 2018 and 2.99 % in 2017 , 3.08 % in 2016. the 2018 yield on earning assets ( fte ) reflected higher market interest rates which offset the impact of the reduced fte adjustment . the company 's funding cost was 0.04 % in 2018 compared with 0.04 % in 2017 and 0.05 % in 2016. average balances of time deposits declined $ 58 million from 2016 to 2018 while lower-cost checking and savings deposits grew 8 % in the same period . average balances of checking and saving deposits accounted for 95.6 % of average total deposits in 2018 compared with 94.8 % in 2017 and 94.1 % in 2016 . [ the remainder of this page intentionally left blank ] - 22 - summary of average balances , yields/rates and interest differential the following tables present information regarding the consolidated average assets , liabilities and shareholders ' equity , the amounts of interest income earned from average interest earning assets and the resulting yields , and the amounts of interest expense incurred on average interest-bearing liabilities and the resulting rates . average loan balances include nonperforming loans . interest income includes reversal of previously accrued interest on loans placed on non-accrual status during the period and proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income and accretion of purchased loan discounts . story_separator_special_tag noninterest expense components of noninterest expense replace_table_token_13_th in 2018 , noninterest expense decreased $ 852 thousand compared with 2017. the 2018 noninterest expense included a $ 3.5 million mediated settlement to dismiss a lawsuit , subject to court approval . the 2017 noninterest expense included a $ 5.5 million loss contingency and a $ 625 thousand impairment of low income housing limited partnership investments due to enactment of the act . the 2017 loss contingency represents the company 's estimated refunds to customers of revenue recognized in prior years . salaries and related benefits increased $ 1.5 million primarily due to the annual merit increase cycle and higher incentives and employee benefit costs . professional fees increased $ 681 thousand due to higher legal and consulting fees . amortization of intangibles decreased $ 1.2 million as assets are amortized on a declining balance method . - 28 - in 2017 , noninterest expense increased $ 4.1 million compared with 2016. the 2017 noninterest expense included a $ 5.5 million loss contingency and a $ 625 thousand impairment of low income housing limited partnership investments due to enactment of the act . the loss contingency represents the company 's estimated refunds to customers of revenue recognized in prior years . expenses for occupancy and equipment increased $ 413 thousand due to technology upgrades . outsourced data processing services expense increased $ 530 thousand primarily due to additional processing services . professional fees decreased $ 1.8 million due to lower legal fees associated with nonperforming assets . amortization of intangibles decreased $ 427 thousand as assets are amortized on a declining balance method . other noninterest expense decreased $ 505 thousand primarily due to lower insurance premiums . provision for income tax the company 's income tax provision was $ 19.4 million in 2018 compared with $ 37.1 million in 2017 and $ 21.1 million in 2016 , representing effective tax rates of 21.4 % , 42.6 % and 26.4 % , respectively . the 2017 income tax provision included a $ 12.3 million charge to re-measure the company 's net deferred tax asset triggered by enactment of the tax cuts and jobs act of 2017. the book tax provisions for 2018 and 2017 include tax benefits of $ 737 thousand and $ 698 thousand , respectively , for tax deductions from the exercise of employee stock options which exceed related compensation expenses recognized in the financial statements . the lower effective tax rate for 2018 reflects a reduction in the federal corporate tax rate as a result of enactment of the act and the tax-exempt nature of a $ 585 thousand life insurance policy gain . investment securities portfolio the company maintains an investment securities portfolio consisting of securities issued by the u.s. treasury , u.s. government sponsored entities , agency and non-agency mortgage backed securities , state and political subdivisions , corporations , and other securities . management has increased the investment securities portfolio in response to deposit growth and loan volume declines . the average carrying value of the company 's investment securities portfolio was $ 3.6 billion for the year ended december 31 , 2018 compared with $ 3.4 billion for the year ended december 31 , 2017. management continually evaluates the company 's investment securities portfolio in response to established asset/liability management objectives , changing market conditions that could affect profitability , liquidity , and the level of interest rate risk to which the company is exposed . these evaluations may cause management to change the level of funds the company deploys into investment securities and change the composition of the company 's investment securities portfolio . in the year ended december 31 , 2018 , management increased the holdings of corporate securities in order to improve yields without extending the duration of the bond portfolio . at december 31 , 2018 , substantially all of the company 's investment securities continue to be investment grade rated by one or more major rating agencies . in addition to monitoring credit rating agency evaluations , management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset-backed securities . the company 's procedures for evaluating investments in securities are in accordance with guidance issued by the board of governors of the federal reserve system , “ investing in securities without reliance on nationally recognized statistical rating agencies ” ( sr 12-15 ) and other regulatory guidance . there have been no significant differences in the company 's internal analyses compared with the ratings assigned by the third party credit rating agencies . during the third quarter 2018 , the atlantic hurricane season caused severe damage within many u.s. states . management evaluated investment security exposures within the counties receiving disaster designations . the company 's exposures are limited to municipal bond and utility provider corporate debt from issuers within south carolina counties , the state of north carolina and the florida panhandle , and has determined that the storms had no material impact on the valuation of its investment securities . effective january 1 , 2018 , upon adoption of asu 2016-01 , equity securities included in the company 's available for sale portfolio of $ 1,800 thousand were reclassified to equity securities . the reclassification of equity securities resulted in recording a cumulative effect adjustment to decrease retained earnings by $ 142 thousand , net of tax . at december 31 , 2018 , the market value of equity securities was $ 1,747 thousand . during the year ended december 31 , 2018 , the company recognized gross unrealized holding losses of $ 52 thousand in earnings .
| financial overview westamerica bancorporation and subsidiaries ' ( collectively , the “ company ” ) reported net income of $ 71.6 million or $ 2.67 diluted earnings per common share ( “ eps ” ) in 2018. the 2018 results include a $ 585 thousand tax-exempt life insurance policy gain and a $ 3.5 million loss contingency settlement , which on an aggregate basis reduced eps $ 0.07. in 2018 , the company achieved a mediated settlement to dismiss a lawsuit , subject to court approval , and accrued a liability for such amount . the 2018 results compare to net income of $ 50.0 million or $ 1.89 eps for the year ended december 31 , 2017 and net income of $ 58.9 million or $ 2.29 eps for the year ended december 31 , 2016. the 2017 results include $ 12.3 million in adjustments to net deferred tax asset values triggered by enactment of the tax cuts and jobs act of 2017 ( the “ act ” ) which reduced eps $ 0.48 , recognition of a $ 5.5 million loss contingency , which reduced eps $ 0.12 , and securities gains of $ 8.0 million , which increased eps $ 0.18. the company 's principal source of revenue is net interest and loan fee income , which represents interest and fees earned on loans and investment securities ( “ earning assets ” ) reduced by interest paid on deposits and other borrowings ( “ interest-bearing liabilities ” ) . market interest rates declined considerably following the recession of 2008 and 2009. interest rates remained historically low through 2016 as the monetary policy of the federal open market committee ( the “ fomc ” ) was highly accommodative . during this period , management avoided originating long-dated , low-yielding loans given the potential impact of such assets on forward earning potential ; as a result , loans declined and investment securities increased .
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application of these principles requires management to make estimates , assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions and judgments are based on information available as of the date of the financial statements . accordingly , as this information changes , the financial statements could reflect different estimates , assumptions and judgments . certain policies inherently have a greater reliance on the use of estimates , assumptions and judgments and , as such , have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value , when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established or when an asset or liability needs to be recorded contingent upon a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources , when available . when these sources are not available , management makes estimates based upon what it considers to be the best available information . allowance for loan losses the allowance for loan losses is an estimate of the losses that exist in the loan portfolio . the allowance is based on two principles of accounting : ( 1 ) fasb asc topic 450 “ contingencies , ” which requires that losses be accrued when they are probable of occurring and are estimable and ( 2 ) fasb asc 310 “ receivables , ” which requires that losses be accrued when it is probable that the company will not collect all principal and interest payments according to the contractual terms of the loan . the loss , if any , is determined by the difference between the loan balance and the value of collateral , the present value of expected future cash flows and values observable in the secondary markets . the allowance for loan losses balance is an estimate based upon management 's evaluation of the loan portfolio . the allowance includes a specific and a general component . the specific component consists of management 's evaluation of impaired loans . impairment is measured on a loan-by-loan basis using one of three acceptable methods : the present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's observable market price or the fair value of the collateral , if the loan is collateral dependent . management assesses the ability of the borrower to repay the loan based upon all information available . loans are examined to determine a specific allowance based upon the borrower 's payment history , economic conditions specific to the loan or borrower and other factors that would impact the borrower 's ability to repay the loan on its contractual basis . depending on the assessment of the borrower 's ability to pay and the type , condition and value of collateral , management will establish an allowance amount specific to the loan . management uses a risk scale to assign grades to commercial relationships , which include commercial real estate , residential rentals , construction and land development , commercial loans and commercial equipment loans . commercial loan relationships with an aggregate exposure to the bank of $ 1,000,000 or greater are risk rated . residential first mortgages , home equity and second mortgages and consumer loans are monitored on an ongoing basis based on borrower payment history . consumer loans and residential real estate loans are classified as unrated unless they are part of a larger commercial relationship that requires grading or are troubled debt restructures or nonperforming loans with an other assets especially mentioned or higher risk rating due to a delinquent payment history . the company 's commercial loan portfolio is periodically reviewed by regulators and independent consultants engaged by management . 34 in establishing the general component of the allowance , management analyzes non-impaired loans in the portfolio including changes in the amount and type of loans . this analysis reviews trends by portfolio segment in charge-offs , delinquency , classified loans , loan concentrations and the rate of portfolio segment growth . qualitative factors also include an assessment of the current regulatory environment , the quality of credit administration and loan portfolio management and national and local economic trends . based upon this analysis a loss factor is applied to each loan category and the bank adjusts the loan loss allowance by increasing or decreasing the provision for loan losses . management has significant discretion in making the judgments inherent in the determination of the allowance for loan losses , including the valuation of collateral , assessing a borrower 's prospects of repayment and in establishing loss factors on the general component of the allowance . changes in loss factors have a direct impact on the amount of the provision and on net income . errors in management 's assessment of the global factors and their impact on the portfolio could result in the allowance not being adequate to cover losses in the portfolio and may result in additional provisions . for additional information regarding the allowance for loan losses , refer to notes 1 and 3 of the consolidated financial statements and the discussion in this md & a . other real estate owned ( “ oreo ” ) the company maintains a valuation allowance on its other real estate owned . as with the allowance for loan losses , the valuation allowance on oreo is based on fasb asc 450 “ contingencies , ” as well as the accounting guidance on impairment of long-lived assets . story_separator_special_tag income before taxes ( pretax net income ) increased $ 5.5 million or 35.9 % to $ 20.9 million for the year ended december 31 , 2019 compared to $ 15.4 million for the year ended december 31 , 2018 . the company 's pretax returns on average assets and common stockholders ' equity for 2019 were 1.20 % and 12.77 % , respectively , compared to 0.96 % and 10.33 % , respectively , for 2018 . the company 's efficiency ratio decreased from 69.42 % for the year ended december 31 , 2018 to 61.10 % for the year ended december 31 , 2019 , primarily as a result of increased efficiencies from the county first acquisition and updates to the bank 's technology platforms which have allowed the company to slow the growth of expenses as the asset size of the bank has increased . in addition , noninterest income increased as a percentage of average assets due to increases in fee income and service charge income . management believes it is important to continue the focus on creating additional operating leverage in the present low interest rate environment . the following were balance sheet financial highlights for 2019 : on december 31 , 2019 , the company issued a total of 312,747 shares of its common stock , par value $ 0.01 in a private placement offering . the company received net proceeds of $ 10.6 million after deal expenses . on february 15 , 2020 , the company used the proceeds and a cash dividend from the bank to redeem the company 's outstanding $ 23.0 million of 6.25 % fixed-to-floating rate subordinated notes . the redemption of the $ 23.0 million in subordinated notes in february 2020 will reduce interest expense by $ 1.4 million on an annualized basis and be accretive to earnings . the annualized positive impact on net interest margin is estimated to be between eight and nine basis points . in the fourth quarter of 2019 , the company reclassified all htm investments as afs . the company no longer intends to hold htm investments . management 's decision should improve interest rate risk management opportunities and increase available on-balance sheet liquidity . in addition , at the bank 's current asset size , regulatory capital ratios will not be impacted as accumulated other comprehensive income ( “ aoci ” ) is excluded . 36 gross loans increased 8.0 % or $ 107.3 million from $ 1,346.9 million at december 31 , 2018 to $ 1,454.2 million at december 31 , 2019 . overall loan growth for 2019 was as expected and based on management 's evaluation of loan opportunities in light of marginal and total funding costs . total deposits increased $ 82.2 million or 5.8 % to $ 1,511.8 million at december 31 , 2019 , which included an increase in transaction accounts of $ 135.1 million and a decrease in time deposits of $ 52.9 million . transaction deposit accounts increased to 73.9 % of deposits at december 31 , 2019 from 68.7 % at december 31 , 2018 . wholesale funding includes brokered deposits and federal home loan bank ( “ fhlb ” ) advances . wholesale funding decreased $ 62.2 million or 57.3 % to $ 46.4 million at december 31 , 2019 from $ 108.5 million at december 31 , 2018 primarily due to the bank 's increased liquidity from deposit growth . as a percentage of assets , wholesale funding decreased to 2.58 % at december 31 , 2019 from 6.43 % at december 31 , 2018 . liquidity was stable in 2019 as the increase in transaction deposits were partially offset by a reduction in time deposits . the decrease in wholesale funding increased available off-balance sheet lines of credit . the company 's net loan to deposit ratio has decreased from 103.1 % at december 31 , 2017 to 93.5 % at december 31 , 2018 and 95.6 % at december 31 , 2019 . the company used available on-balance sheet liquidity during 2018 and 2019 to fund loans , increase investments and pay down wholesale funding . increased liquidity provides more opportunities to lower our funding costs over time . classified assets as a percentage of assets improved in 2019 , decreasing 49 basis points from 2.42 % at december 31 , 2018 to 1.93 % at december 31 , 2019 . non-accrual loans , oreo and tdrs to total assets decreased 56 basis points from 2.02 % at december 31 , 2018 to 1.46 % at december 31 , 2019 . years ended december 31 , 2018 and december 31 , 2017 net income for the year ended december 31 , 2018 was $ 11.2 million or $ 2.02 per diluted share compared to net income of $ 7.2 million or $ 1.56 per diluted share for the year ended december 31 , 2017. the annual results included merger and acquisition costs net of tax of $ 2.7 million and $ 724,000 for the comparative periods . additionally , the year ended december 31 , 2017 results included $ 2.7 million in additional income tax expense from the revaluation of deferred tax assets because of the reduction in the corporate income tax rates under the tax cuts and jobs act of 2017. the impact of merger and acquisition costs for the comparative years and the adjustments to deferred tax assets in 2017 resulted in a reduction to earnings per share of $ 0.49 for the year ended december 31 , 2018 and $ 0.75 for the year ended december 31 , 2017. the company 's roaa and roace were 0.70 % and 7.53 % in the year ended december 31 , 2018 compared to 0.52 % and 6.55 % in the year ended december 31 , 2017. net income for 2018 compared to 2017 increased due to additional net interest income from a larger balance sheet , a lower 2018 effective tax rate as well as the impact in 2017 of the $ 2.7 million in additional income tax expense from the
| and as a result $ 31.4 million of reciprocal deposits were considered brokered deposits for call reporting purposes . there were no reciprocal deposits considered brokered deposits at december 31 , 2018 . the fdic 's examination policies require that the company monitor customer deposit concentrations that are 2 % or more of total deposits . at december 31 , 2019 , the bank had two customer deposit relationships that exceeded 2 % of total deposits , totaling $ 297.1 million which represented 19.6 % of total deposits . at december 31 , 2018 , one customer deposit relationship exceeded 2 % 61 of total deposits , totaling $ 158.8 million which represented 11.1 % of total deposits . the reported concentrations at december 31 , 2019 and 2018 were with local municipal agencies . at december 31 , 2019 , the company had on-balance sheet liquidity of $ 37.3 million in cash and cash equivalents , and equity securities carried at fair value through income as well as $ 153.5 million in unpledged afs securities . the company had $ 216.3 million in available fhlb lines at december 31 , 2019 , which does not include any afs securities . at december 31 , 2019 , total available collateral for fhlb borrowing was $ 369.8 million and total available fhlb collateral and cash was $ 407.1 million . the company uses brokered deposits and other wholesale funding to supplement funding when loan growth exceeds core deposit growth and for asset-liability management purposes . brokered deposits have decreased $ 52.1 million or 98.1 % to $ 1.0 million at december 31 , 2019 compared to $ 53.1 million at december 31 , 2018 . federal home loan bank ( “ fhlb ” ) long-term debt and short-term borrowings ( “ advances ” ) decreased $ 10.1 million , or 18.2 % , to $ 45.4 million at december 31 , 2019 compared to $ 55.4 million at december 31 , 2018 .
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as used in this report , the terms “ company ” , “ we ” , “ our ” , “ us ” and “ nnvc ” refer to nanoviricides , inc. , a nevada corporation . preliminary note regarding forward-looking statements this annual report contains forward-looking statements within the meaning of the federal securities laws . these include statements about our expectations , beliefs , intentions or strategies for the future , which we indicate by words or phrases such as “ anticipate , ” “ expect , ” “ intend , ” “ plan , ” “ will , ” “ we believe , ” “ nnvc believes , ” “ management believes ” and similar language . the forward-looking statements are based on the current expectations of nnvc and are subject to certain risks , uncertainties and assumptions , including those set forth in the discussion under “ management 's discussion and analysis of financial condition and results of operations ” in this report . actual results may differ materially from results anticipated in these forward-looking statements . we base the forward-looking statements on information currently available to us , and we assume no obligation to update them . investors are also advised to refer to the information in our previous filings with the securities and exchange commission ( sec ) , especially on forms 10-k , 10-q and 8-k , in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results . it is not possible to foresee or identify all such factors . as such , investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions . page 73 of 87 management 's plan of operation the company 's drug development business model was formed in may 2005 with a license to the patents and intellectual property held by theracour that enabled creation of drugs engineered specifically to combat viral diseases in humans . this exclusive license from theracour serves as a foundation for our intellectual property . the company was granted a worldwide exclusive license to this technology for several drugs with specific targeting mechanisms for the treatment of the following human viral diseases : human immunodeficiency virus ( hiv/aids ) , hepatitis b virus ( hbv ) , hepatitis c virus ( hcv ) , rabies , herpes simplex virus ( hsv-1 and hsv-2 ) , influenza and asian bird flu virus . the company entered into an additional license agreement with theracour granting the company the exclusive licenses for technologies developed by theracour for the additional virus types : dengue viruses , japanese encephalitis virus , west nile virus , viruses causing viral conjunctivitis ( a disease of the eye ) and ocular herpes , and ebola/marburg viruses . at present , the company has a license for herpes simplex virus areas , but not for the non-simplex human herpes viruses that include vzv . the company and theracour have signed a memorandum of understanding governing the general terms of a license for vzv drug development in february 2019. the definitive agreement is currently being negotiated between the parties . the company discloses the risk that while we are working with the assumption that we will be able to come to mutually agreeable terms for an additional license for the vzv area with theracour . however , there can be no assurance that the company will be able to enter into an agreement with theracour for such license or that the agreement will be on terms that are favorable to the company . the company may want to add further virus types to its drug pipeline as the company progresses further . the company would then need to negotiate with theracour appropriate license agreements to include those of such additional viruses that the company determines it wants to follow for further development . we are seeking to add to our existing portfolio of products through our internal discovery pre-clinical development programs and through an in-licensing strategy . the licenses granted by theracour are for entire set of pathologies that the licensed virus is a causative agent for . the licenses are not for single drug/indication pairs , which is the customary mode of licensing in the pharmaceutical industry . thus these are very broad licenses and enable nanoviricides to pursue a number of indications as well as develop drug candidates with different characteristics as is best suited for the indications , without having to license the resulting drugs for each indication separately , as with normal pharmaceutical industry licensing . the company plans to develop several drugs through the preclinical studies and clinical trial phases with the goal of eventually obtaining approval from the united states food and drug administration ( “ fda ” ) and international regulatory agencies for these drugs . the company plans , when appropriate , to seek regulatory approvals in several international markets , including developed markets such as europe , japan , canada , australia , and emerging regions such as southeast asia , india , china , central and south america , as well as the african subcontinent . the seeking of these regulatory approvals would only come when and if one or more of our drugs have significantly advanced through the us fda and international regulatory process . if and as these advances occur , the company may attempt to partner with more established pharmaceutical companies to advance the various drugs through the approval process . the company intends to perform the regulatory filings and own all the regulatory licenses for the drugs it is currently developing . the company will develop these drugs in part via subcontracts to theracour , the exclusive source for these nanomaterials . the company may manufacture these drugs itself , or under subcontract arrangements with external manufacturers that carry the appropriate regulatory licenses and have appropriate capabilities . the company intends to distribute these drugs via subcontracts with distributor companies or in partnership arrangements . story_separator_special_tag story_separator_special_tag text-align : justify '' > other income ( expenses ) - interest income was $ 100,429 and $ 60,955 for the years ended june 30 , 2018 , and 2017 , respectively . interest income included interest on cash or cash equivalent deposits in interest-bearing accounts . interest income increased due to an increase in interest rates paid on deposits . the company has incurred interest expense of $ 185,274 and $ 780,767 for the years ended june 30 , 2018 and june 30 , 2017 , respectively . the decrease was due to the redemption of the series b debentures on february 1 , 2017 and the series c debenture at november 13 , 2017. the company amortized the discount on its series b and series c debentures , which were calculated at issuance . the company recognized an amortization of debt discount expense of $ 359,214 and $ 1,347,748 for the years ended june 30 , 2018 and 2017 , respectively . the decrease in amortization of debt discount is a result of the maturity of the series b debentures and the redemption of the series c debenture . income taxes - there is no provision for income taxes due to ongoing operating losses . as of june 30 , 2018 we had estimated cumulative tax benefits and development tax credits and other deferred tax credits resulting in a deferred tax asset of approximately $ 37,085,072. this amount has been offset by a full valuation allowance . net loss - for the year ended june 30 , 2018 , the company had a net loss of $ 8,563,455 , or a basic and fully diluted loss per share of $ 0.13 compared to a net loss of $ 10,304,490 , or a basic and fully diluted loss per share of $ 0.17 for the year ended june 30 , 2017. the decrease in the company 's net loss from the year ended june 30 , 2017 to the year ended june 30 , 2018 of $ 1,741,035 is generally attributable to the larger gain resulting from the change in fair value of derivatives , lower discount on convertible debenture expense , and interest expense partially offset by a loss on extinguishment of debt of $ 1,347,748. liquidity and capital reserves the company had cash and cash equivalents of $ 2,555,207 and $ 7,081,771 as of june 30 , 2019 and 2018 , respectively . on the same dates , current liabilities outstanding totaled $ 2,848,153 and $ 881,948 , respectively . as of june 30 , 2019 and 2018 , the derivative liability associated with its outstanding warrants was reported as a current liability of $ 1,645,606 and $ 298,092 , respectively . since inception , the company has expended substantial resources on research and development . consequently , we have sustained substantial losses . the company has an accumulated deficit of $ 92,116,586 and $ 83,692,146 at june 30 , 2019 and 2018 , respectively . these factors , among others , raise substantial doubt about our ability to continue as a going concern . the accompanying financial statements do not include any adjustments to the recoverability and classifications of assets carrying amounts or the amounts and classifications of liabilities that might result from the outcome of these uncertainties . accordingly , we need to raise additional capital and are exploring potential transactions to improve our capital position . unless we are able to generate additional capital or secure financing from other transactions , our current cash resources will only satisfy our working capital needs for a limited period of time . the company is exploring potential transactions to raise additional cash in the capital markets and support current budgeted operations through august , 2020. the company has made several adjustments to the ensuing annual budget , eliminating several expenses including a reduction in workforce and consultants to the extent feasible without affecting its program of drug development . in addition , the company has focused its efforts primarily on a single lead program to minimize cost outlays , namely taking the shingles drug candidate against vzv into human clinical trials . however , the company does not believe that it currently lacks sufficient funds to allow for the ensuing costs of the external advanced ind-enabling studies of this drug candidate . management has considered several options for financing the net working capital deficit as well as to obtain additional funds that will be needed for future human clinical trials . the company has received interest from public capital market investors with various financial instruments being proposed to us , that we believe are more than sufficient to cover the working capital deficit and to enable the company to continue as a going concern . currently , we do not have any definitive agreements with any third-party for such transactions and there can be no assurance ; however , that we will be successful in raising additional capital or securing financing when needed on terms satisfactory to the company . additionally , theracour had agreed to defer $ 25,000 per month of development fees for twelve months , through june 30 , 2019. repayment has been deferred until the filing of an ind with the fda . page 77 of 87 in addition , the company believes that it has several important milestones that it will be achieving in the ensuing year . in brief , these include the declaration of a final clinical candidate for its lead drug indication , achieving successful cgmp-like production of the drug as required for the ensuing “ tox package ” studies , initiation and completion of the tox package studies , a “ pre-ind ” meeting with the fda , filing of an ind , and the beginning of initial human clinical trials . in general , as a pharmaceutical company achieves these milestones , its risk-profile with investors improves , allowing appreciation in the stock price , in the market capitalization , as well as in the trading volumes .
| results of operations the company is a biopharmaceutical company and does not have any revenue for the years ended june 30 , 2019 , 2018 and 2017. comparison of the year end june 30 , 2019 to the year ended june 30 , 2018 revenues - the company is a non-revenue producing entity . operating expenses - research and development expenses for the year ended june 30 , 2019 increased $ 8,000 to $ 5,921,720 from $ 5,913,720 for the year ended june 30 , 2018. this year-to-year increase is generally attributable to an increase in lab supplies and chemicals , and a decrease in employee compensation expenses offset by increases in lab fees for pre ind studies . general and administrative expenses decreased $ 673,487 to $ 2,737,962 for the year ended june 30 , 2019 from $ 3,411,449 for the year ended june 30 , 2018. the decrease in general and administrative expenses is generally attributable to a decrease in salary and stock compensation paid to retired executive officers and to employees other than research scientists , a decrease in consultants costs unrelated to research and development offset by an increase in legal , and professional expenses . other income ( expenses ) - interest income was $ 55,497 and $ 100,429 for the years ended june 30 , 2019 , and 2018 , respectively . interest income included interest on cash or cash equivalent deposits in interest-bearing account . interest income decreased due to a decrease in deposits . the company has incurred interest expense of $ 0 and $ 185,274 for the years ended june 30 , 2019 and june 30 , 2018 , respectively . the decrease was due to the redemption of the series b debentures at maturity , and the series c debentures pursuant to a redemption agreement . the company amortized the discount on its series b and series c debenture , which were calculated at issuance .
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goodwill represented the excess of the purchase price and the fair value of non-controlling interests over the fair value of identified tangible and intangible assets less the fair value of liabilities assumed . the partnership believed that the locations , synergies created , and the projected future cash flows of brown merited the recognition story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations contains a discussion of our business , including a general overview of our properties , our results of operations , our liquidity and capital resources , and our quantitative and qualitative disclosures about market risk . at the closing of our ipo on january 21 , 2014 , cep llc and a 50.1 % interest in the tir entities were contributed to us and became our water and environmental services ( “ w & es ” ) segment and our pipeline inspection services ( “ pis ” ) segment , respectively . these contributions were treated for accounting purposes as a combination of entities under common control and the results of cep llc are included as if the contributions had occurred as of march 15 , 2012 and the results of the tir entities were included in our financial statements for periods subsequent to june 26 , 2013 , the date holdings acquired a controlling interest . brown integrity , llc ( our integrity services ( “ is ” ) segment ) was acquired effective may 1 , 2015 , and the results of this segment have been included in our financial statements for periods subsequent to that date . the following discussion contains forward-looking statements that reflect our future plans , estimates , beliefs and expected performance . the forward-looking statements are dependent upon events , risks and uncertainties that may be outside our control , including among other things , the risk factors discussed in “ item 1a . risk factors ” of this annual report on form 10-k. our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , market prices for oil and natural gas , production volumes , estimates of proved reserves , capital expenditures , economic and competitive conditions , regulatory changes and other uncertainties , as well as those factors discussed below and elsewhere in this annual report on form 10-k , all of which are difficult to predict . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . see “ cautionary remarks regarding forward-looking statements ” in the front of this annual report on form 10-k. overview we are a growth-oriented master limited partnership formed in september 2013 to provide services to the oil and gas industry . we provide independent pipeline inspection and integrity services to various energy exploration and production ( “ e & p ” ) and midstream companies and their vendors in our pis and is segments throughout the united states and canada . the pis segment is comprised of the operations of the tir entities and the is segment is comprised of the operations of brown . we also provide swd and other water and environmental services to u.s. onshore oil and natural gas producers and trucking companies through our w & es segment . the w & es segment is comprised of the historical operations of cep llc that were contributed to us . we operate ten swd facilities , eight of which are in the bakken shale region of the williston basin in north dakota and two of which are in the permian basin in west texas . we also have a management agreement in place to provide staffing and management services to one 25 % -owned swd facility in the bakken shale region . in all of our business segments , we work closely with our customers to help them comply with increasingly complex and strict environmental and safety rules and regulations applicable to production and pipeline operations , assisting in reducing their operating costs . how we generate revenue we generate revenue in the pis segment primarily by providing inspection services on midstream pipelines , gathering systems , and distribution systems , including data gathering and supervision of third-party construction , inspection , and maintenance and repair projects . our results in this segment are driven primarily by the number of inspectors that perform services for our customers and the fees that we charge for those services , which depend on the type and number of inspectors used on a particular project , the nature of the project , and the duration of the project . the number of inspectors engaged on projects is driven by the type of project , prevailing market rates , the age and condition of customers ' midstream pipelines , gathering systems , and distribution systems , and the legal and regulatory requirements relating to the inspection and maintenance of those assets . we charge our customers on a per-inspector basis , including per diem charges , mileage , and other reimbursement items . we generate revenue in our is segment primarily by providing hydrostatic testing services to major natural gas and petroleum companies and pipeline construction companies . we perform these services on newly-constructed and existing natural gas and petroleum pipelines . we generally charge our customers in this segment on a fixed-bid basis . bid prices vary based on the size and length of the pipeline being inspected , the complexity of services provided , and the utilization of our work force and equipment . our results in this segment are driven primarily by the number of field personnel that perform services for our customers , the fees that we charge for those services ( which depend on the type and number of field personnel used on a particular project ) , the type of equipment used and the fees charged for the utilization of that equipment , and the nature and duration of the project . story_separator_special_tag thus , our residual oil recovery during the winter season is lower than our recovery during the summer season in north dakota . additionally , residual oil content will decrease if , among other things , producers begin recovering higher levels of residual oil in saltwater prior to delivering such saltwater to us for treatment . operating expenses the primary components of our operating expenses that we evaluate include costs of services , general and administrative , and depreciation and amortization . costs of services . employee-or-contractor-related costs and per diem expenses are the primary costs of services components in pis and is . these expenses fluctuate from period to period based on the number , type , and location of projects on which we are engaged at any given time . we seek to maximize the profitability of our operations in part by minimizing , to the extent appropriate , expenses directly tied to operating and maintaining our assets . repair and maintenance costs , employee-related costs , residual oil disposal costs , lease expenses , and utility expenses are the primary cost of services components in w & es . these expenses generally remain relatively stable across broad ranges of saltwater disposal volumes but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of these expenses . general and administrative . general and administrative expenses include management and overhead payroll , general office expenses , management fees , legal fees , and other expenses . under our amended and restated omnibus agreement , holdings charges us an annual administrative fee of $ 4.0 million ( payable in equal quarterly installments ) for the provision of certain partnership overhead expenses . this fee is subject to an increase by an annual amount equal to ppi plus one percent or , with the concurrence of the conflicts committee , in the event of an expansion of our operations , including through acquisitions or internal growth . to the extent that holdings incurs overhead expenses in excess of our annual administrative fee that are attributable to the operations of the partnership , these expenses are reported in our consolidated statements of operations within general and administrative expense and as an equity contribution attributable to our general partner in our consolidated statement of equity . included in this administrative fee are general and administrative expenses attributable to operating as a publicly traded partnership , such as expenses associated with annual and quarterly sec reporting ; tax return and schedule k-1 preparation and distribution expenses ; sarbanes-oxley compliance ; listing on the new york stock exchange ; independent registered public accounting firm fees ; certain legal fees ; investor relations , registrar , and transfer agent fees ; director and officer liability insurance costs ; and director compensation . our partnership agreement provides that holdings will determine and allocate expenses related to our operations and may provide us other services for which we will be charged fees as determined in good faith . payments to holdings and its affiliates following the terminiation of our amended and restated omnibus agreement could be substantial and will reduce the amount of cash we have available to distribute to unitholders . during the year ended december 31 , 2016 , holdings provided sponsor support to the partnership by waiving payment of the quarterly administrative fee . we reported the amount of the waived fee within general and administrative expense in our consolidated statement of operations and as an equity contribution in our consolidated statement of equity . depreciation , amortization and accretion depreciation , amortization and accretion expense primarily consists of our estimate of the decrease in value of our capitalized tangible and intangible assets as a result of using the assets over time . depreciation and amortization are recorded on a straight-line basis . we estimate our assets have useful lives ranging from 3 to 39 years . the facilities , wells , and equipment of our w & es segment constituted approximately 60 % and 75 % of the net book value of our fixed assets as of december 31 , 2016 and 2015 , respectively , and generally have useful lives of 5 to 15 years . 55 segment gross margin , adjusted ebitda and distributable cash flow we view segment gross margin as one of our primary management tools , and we track this item on a regular basis , both as an absolute amount and as a percentage of revenues compared to prior periods . we also track adjusted ebitda , defined as net income ( loss ) plus interest expense , depreciation and amortization expense , income tax expense , offering costs , impairments , non-cash allocated expenses , and equity-based compensation . we use distributable cash flow , defined as adjusted ebitda less net cash interest paid , cash taxes paid , and maintenance capital expenditures , as an additional measure to analyze our performance . distributable cash flow does not reflect changes in working capital balances , which could be significant , as headcounts of pis vary from period to period . adjusted ebitda and distributable cash flow are non-gaap , supplemental financial measures used by management and by external users of our financial statements , such as investors , lenders , and analysts , to assess : ● our operating performance as compared to those of other providers of similar services , without regard to financing methods , historical cost basis , or capital structure ; ● the ability of our assets to generate sufficient cash flow to support our indebtedness and make distributions to our partners ; ● the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities ; ● our ability to incur and service debt and fund capital expenditures ; and ● the viability of acquisitions and other capital expenditure projects and the rates of return on various investment opportunities . adjusted ebitda and distributable cash flow are not financial measures presented in accordance with gaap .
| consolidated results of operations the following table compares the operating results of cypress energy partners , l.p. for the years ended december 31 : replace_table_token_9_th ( a ) activity for the year ended december 31 , 2015 includes the operations of brown ( is segment ) from the may 1 , 2015 acquisition date through the end of the year . see the detailed discussion of revenues , costs of services , gross margin , general and administrative expense and depreciation , amortization and accretion by reportable segment below . see also note 14 to our consolidated financial statements included in “ item 8 . – financial statement and supplementary data. ” 61 the following is a discussion of significant changes in the non-segment related corporate other income and expenses for the years ended december 31 , 2016 , 2015 , and 2014. interest expense . interest expense primarily consists of interest on borrowings under our credit agreement , as well as amortization of debt issuance costs and unused commitment fees . interest expense increased in 2015 and 2016 primarily due to increased borrowings related to the acquisition of the remaining 49.9 % interest in the tir entities and the acquisition of 51 % of brown . average debt outstanding for the years ended december 31 , 2016 , 2015 , and 2014 was $ 137.3 million , $ 129.9 million , and $ 72.5 million , respectively . offering costs . during the year ended december 31 , 2014 , we incurred offering costs of $ 0.4 million for professional services related to our ipo . gain on waiver of right of purchase and other , net . during 2015 , the partnership received $ 1.0 million for relinquishing its option to purchase certain assets from a related party . during 2016 , the partnership generated $ 0.3 million of income from its 25 % interest in an swd facility , which it is accounted for under the equity method . income tax expense .
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as discussed in note 2 of the consolidated financial statements , the company 's investment properties are reviewed for impairment on a property-by-property story_separator_special_tag the following discussion should be read in conjunction with the accompanying audited consolidated financial statements and related notes thereto and item 1a , “ risk factors , ” appearing elsewhere in this annual report on form 10-k. in this discussion , unless the context suggests otherwise , references to “ our company , ” “ we , ” “ us , ” and “ our ” mean kite realty group trust and its direct and indirect subsidiaries , including kite realty group , l.p. overview in the following overview , we discuss , among other things , the status of our business and properties , the effect that current united states economic conditions is having on our retail tenants and us , and the current state of the financial markets and how it impacts our financing strategy . our business and properties kite realty group trust is a publicly-held real estate investment trust which , through its majority-owned subsidiary , kite realty group , l.p. , owns interests in various operating subsidiaries and joint ventures engaged in the ownership and operation , acquisition , development and redevelopment of high-quality neighborhood and community shopping centers in select markets in the united states . we derive revenues primarily from activities associated with the collection of contractual rents and reimbursement payments from tenants at our properties . our operating results therefore depend materially on , among other things , the ability of our tenants to make required lease payments , the health and resilience of the united states retail sector , interest rate volatility , job growth and real estate market and overall economic conditions . as of december 31 , 2019 , we owned interests in 90 operating and redevelopment properties totaling approximately 17.4 million square feet . we also owned one development project under construction as of this date . portfolio update in evaluating acquisition , development , and redevelopment opportunities , we look for strong sub-markets where average household income , population density , traffic counts and daytime workforce populations are above the broader market average . we also focus on locations that are benefitting from current population migratory patterns , namely major cities in states with no or relatively low income taxes , and mild or temperate climates . in our largest sub-markets , household incomes are significantly higher and state income taxes are relatively lower than the medians for those broader markets . in february 2019 , we announced a plan to market and sell up to $ 500 million in non-core assets as part of a program designed to improve the company 's portfolio quality , reduce its leverage , and focus operations on markets where we believe the company can gain scale and generate attractive risk-adjusted returns . this program ( `` project focus 2019 '' ) was completed in october 2019. the majority of the net proceeds were used to repay debt , further strengthening our balance sheet . 45 in addition to the delevering , we improved the quality of our portfolio . we increased the abr of our portfolio to $ 17.83 as the retail assets sold had a weighted average abr of $ 14.66 , which is significantly lower than our current portfolio . in addition to targeting sub-markets with strong consumer demographics , we focus on having the most desirable tenant mix at each center . we have aggressively targeted and executed leases with prominent grocers including publix , aldi , and trader joe 's , expanding retailers such as tj maxx , ross dress for less , burlington , and old navy , service and restaurant retailers such as and other retailers such as ulta , rei , party city and total wine . additionally , we have identified cost-efficient ways to relocate , re-tenant and renegotiate leases at several of our properties allowing us to attract more suitable tenants . capital and financing activities our ability to obtain capital on satisfactory terms and to refinance borrowings as they mature is affected by the condition of the economy in general and by the financial strength of properties securing borrowings . with the successful completion of project focus in 2019 , we were able to enhance our already-strong balance sheet , increase our financial flexibility , and improve our liquidity to fund future growth . we ended the year with approximately $ 614.8 million of combined cash and borrowing capacity on our unsecured revolving credit facility . in addition , as of december 31 , 2019 , we did not have any debt principal scheduled to mature through december 31 , 2021. the amount that we may borrow under our unsecured revolving credit facility is limited by the value of the assets in our unencumbered asset pool . as of december 31 , 2019 , the value of the assets in our unencumbered asset pool was $ 1.4 billion . the investment grade credit ratings we have received provide us with access to the unsecured public bond market , which we may continue to use in the future to finance acquisition activity , repay maturing debt and fix interest rates . summary of critical accounting policies and estimates our significant accounting policies are more fully described in note 2 to the accompanying consolidated financial statements . as disclosed in note 2 , the preparation of financial statements in accordance with gaap requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . we believe that the following discussion addresses our most critical accounting policies , which are those that are most important to the compilation of our financial condition and results of operations and , in some cases , require management 's most difficult , subjective , and complex judgments . story_separator_special_tag characteristics we consider in determining these values include the nature and extent of existing business relationships with the tenant , growth prospects for developing new business with the tenant , the tenant 's credit quality , and expectations of lease renewals , among other factors . to date , a tenant relationship has not been developed that is considered to have a current intangible value . revenue recognition as a lessor of real estate assets , the company retains substantially all of the risks and benefits of ownership and accounts for its leases as operating leases . contractual minimum base rent , percentage rent , and expense reimbursements from tenants for common area maintenance costs , insurance and real estate taxes are our principal sources of revenue . base minimum rents are recognized on a straight-line basis over the terms of the respective leases . certain lease agreements contain provisions that grant additional rents based on a tenant 's sales volume ( contingent overage rent ) . overage rent is recognized when tenants achieve the specified sales targets as defined in their lease agreements . overage rent is included in rental income in the accompanying consolidated statements of operations for the year ended december 31 , 2019. if we determine that collectibility is probable , we recognize income from rentals 47 based on the methodology described above . we have accounts receivable due from tenants and are subject to the risk of tenant defaults and bankruptcies that may affect the collection of outstanding receivables . these receivables are reduced for credit loss that is recognized as a reduction to rental income . we regularly evaluate the collectibility of these lease-related receivables by analyzing past due account balances and consider such facts as the credit quality of our customer , historical write-off experience , tenant credit-worthiness and current economic trends when evaluating the collectibility of rental income . although we estimate uncollectible receivables and provide for them through charges against income , actual experience may differ from those estimates . we recognize the sale of real estate when control transfers to the buyer . as part of our ongoing business strategy , we will , from time to time , sell land parcels and outlots , some of which are ground leased to tenants . fair value measurements we follow the framework established under accounting standard fasb asc 820 , fair value measurements and disclosures , for measuring fair value of non-financial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis but only in certain circumstances , such as a business combination or upon determination of impairment . assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows : level 1 fair value inputs are quoted prices in active markets for identical instruments to which we have access . level 2 fair value inputs are inputs other than quoted prices included in level 1 that are observable for similar instruments , either directly or indirectly , and appropriately consider counterparty creditworthiness in the valuations . level 3 fair value inputs reflect our best estimate of inputs and assumptions market participants would use in pricing an instrument at the measurement date . the inputs are unobservable in the market and significant to the valuation estimate . in instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy , the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety . our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability . as discussed in note 8 to the financial statements , we have determined that derivative valuations are classified in level 2 of the fair value hierarchy . cash and cash equivalents , accounts receivable , escrows and deposits , and other working capital balances approximate fair value . note 6 to the financial statements includes a discussion of the fair values recorded when we recognized impairment charges in 2019 , 2018 and 2017. level 3 inputs to these transactions include our estimations of disposal values . income taxes and reit compliance parent company the parent company , which is considered a corporation for u.s. federal income tax purposes , has been organized and intends to continue to operate in a manner that will enable it to maintain its qualification as a reit for federal income tax purposes . as a result , it generally will not be subject to u.s. federal income tax on the earnings that it distributes to the extent it distributes its “ reit taxable income ” ( determined before the deduction for dividends paid and excluding net capital gains ) to shareholders of the parent company and meets certain other requirements on a recurring basis . to the extent that it satisfies this distribution requirement , but distributes less than 100 % of its taxable income , it will be subject to u.s. federal corporate income tax on its undistributed reit taxable income . reits are subject to a number of organizational and operational requirements . if the parent company fails to qualify as a reit in any taxable year , it will be subject to u.s. federal income tax on its taxable income at regular corporate rates for a period of four years following the year in which qualification is lost . we may also be subject to certain u.s. federal , state and local taxes on our income and property and to federal income and excise taxes on our undistributed taxable income even if the parent company does qualify as a reit .
| results of operations as of december 31 , 2019 , we owned interests in 90 operating and redevelopment properties and one development project currently under construction . the following table sets forth the total operating and redevelopment properties and development projects that we owned as of december 31 , 2019 , 2018 and 2017 : replace_table_token_9_th the comparability of results of operations is affected by our development , redevelopment , and operating property disposition activities in 2018 through 2019 . therefore , we believe it is most useful to review the comparisons of our results of operations for these years ( as set forth below under “ comparison of operating results for the years ended december 31 , 2019 and 2018 ” ) in conjunction with the discussion of these activities during those periods , which is set forth below . property acquisition activities during the year ended december 31 , 2019 , we acquired the properties listed in the table below . we did not acquire any properties in 2018. property name msa acquisition date owned gla pan am plaza garage indianapolis , in march 2019 n/a nora plaza indianapolis , in august 2019 139,743 49 operating property disposition activities during the two years ended december 31 , 2019 , we sold the operating properties listed in the table below . replace_table_token_10_th 1 the company has retained a 20 % ownership interest in this property . redevelopment activities during portions of the two years ended december 31 , 2019 , the following properties were under active redevelopment and removed from our operating portfolio : 50 replace_table_token_11_th 1 transition date represents the date the property was transferred from our operating portfolio into redevelopment status . 2 this property has been identified as a redevelopment property and is not included in the operating portfolio or the same property pool . 3 this redevelopment would potentially include the creation of a mixed-use ( office , retail , and multi-family ) development .
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the noncontrolling interests in consolidated properties for the years ended december 31 , 2014 , 2013 , and 2012 were as follows : replace_table_token_47_th f-12 redeemable noncontrolling interests – operating partnership we classify redeemable noncontrolling interests in the operating partnership in the accompanying consolidated balance sheets outside of permanent equity because we may be story_separator_special_tag the following discussion should be read in conjunction with the accompanying audited consolidated financial statements and related notes thereto and item 1a , “ risk factors , ” appearing elsewhere in this annual report on form 10-k. in this discussion , unless the context suggests otherwise , references to the “ company , ” “ we , ” “ us ” and “ our ” mean kite realty group trust and its subsidiaries . overview in the following overview , we discuss , among other things , the status of our business and properties , the effect that current united states economic conditions is having on our retail tenants and us , and the current state of the financial markets and how it impacts our financing strategy . our business and properties kite realty group trust , through its majority-owned subsidiary , kite realty group , l.p. , is engaged in the ownership , operation , acquisition , development , and redevelopment of neighborhood and community shopping centers in selected markets in the united states . we derive revenues primarily from rents and reimbursement payments received from tenants under existing leases at each of our properties . our operating results therefore depend materially on the ability of our tenants to make required rental payments , conditions in the united states retail sector and overall real estate market conditions . as of december 31 , 2014 , we owned interests in 118 retail operating properties totaling approximately 23.9 million square feet of gross leasable area ( including approximately 7.7 million square feet of non-owned anchor space ) located in 26 states . we also own interests in one office operating property and an associated parking garage , as well as the office components at eddy street commons and traditions village , totaling approximately 0.4 million square feet of net rentable area . as of december 31 , 2014 , we also had an interest in four development projects under construction . upon completion , these projects are anticipated to have approximately 0.9 million square feet of gross leasable area . 47 additionally , as of december 31 , 2014 , we owned interests in various land parcels totaling approximately 105 acres . these parcels are classified as “ land held for development ” in investment properties in the accompanying consolidated balance sheets and are expected to be used for future expansion of existing properties , development of new retail or office properties or sold to third parties . portfolio update in evaluating acquisition , development , and redevelopment opportunities , we focus on strong sub-markets where median household income is above the median for the market . we also focus on locations with population density , high traffic counts , and strong daytime work force populations . household incomes in our largest markets are significantly higher than the median for the market . 2014 was a strong year for the shopping center industry as landlords continued to take advantage of historically low new shopping center supply . this has provided landlords the opportunity to optimize the tenant mix at properties and upgrade shop space . additionally , many existing retailers continue to grow by expanding into new markets and also expanding into new concepts such as field & stream by dick 's sporting goods . in addition , the continued investment by retailers in omni-channel operations to merge their brick and mortar and online operations is an opportunity for retailers with quality assets in strong locations to drive rent and occupancy growth . in addition to targeting sub-markets with strong consumer demographics , we focus on having the appropriate tenant mix at each center . over 90 % of our tenants are service oriented or have a notable online platform that has reduced the impact of the expansion of e-commerce on their operations . we have aggressively targeted and executed leases with notable grocers including publix , the fresh market , earth fare , and sprout 's farmers market along with soft good retailers such as dick 's sporting goods , tjx companies , and bed bath and beyond . additionally , we have identified cost-efficient ways to optimize space for junior anchors such as right-sizing office supply stores and backfilling the existing space with a tenant more suitable to the larger space . capital activities our ability to obtain capital on satisfactory terms and to refinance borrowings as they mature is affected by the condition of the economy in general and by the financial strength of properties securing borrowings . 2014 was a transformative year for our capital structure as we significantly improved many key metrics . the merger increased the value of our unencumbered property pool and created additional liquidity . in addition , the incremental cash flows enabled us to lower our debt to ebitda ratio to 6.5 times as of december 31 , 2014. the lower leverage and higher operating cash flows led to us receiving investment grade ratings in 2014 , which we believe will enhance our liquidity . in addition , we disposed of multiple non-core properties and are under contract to sell seven additional properties in march 2015. these sales provided us with an additional source of capital to reduce debt and potentially redeploy into core markets including the december 2014 acquisition of rampart commons in las vegas . we also significantly increased our liquidity through amending the terms of our unsecured revolving credit facility ( the “ amended facility ” ) upon completion of the merger and increased the total borrowing capacity from $ 200 million to $ 500 million . story_separator_special_tag in the first quarter of 2014 , we adopted the provisions of asu 2014-08 , presentation of financial statements ( topic 205 ) and property , plant , and equipment ( topic 360 ) : reporting discontinued operations and disclosures of disposals of components of an entity and as a result the operating properties sold during 2014 , except for 50 th and 12 th and the seven operating properties that are classified as held for sale as of december 31 , 2014 are not included in discontinued operations in the accompanying statements of operations as the disposals neither individually nor in the aggregate represent a strategic shift that has or will have a major effect on our operations or financial results . the 50 th and 12 th operating property is included in discontinued operations for the years ended december 31 , 2014 , 2013 and 2012 , as the property was classified as held for sale as of december 31 , 2013 and is reported under the former rules . in addition , the provisions of asu 2014-08 were not required to be applied retroactively . 49 acquisition of real estate investments upon acquisition of real estate operating properties , we estimate the fair value of acquired identifiable tangible assets and identified intangible assets and liabilities , assumed debt , and any noncontrolling interest in the acquiree at the date of acquisition , based on evaluation of information and estimates available at that date . based on these estimates , we allocate the estimated fair value to the applicable assets and liabilities . in making estimates of fair values for the purpose of allocating purchase price , a number of sources are utilized , including information obtained as a result of pre-acquisition due diligence , marketing and leasing activities . in 2014 , we utilized a third party valuation expert to assist in the allocation of the purchase price of the operating properties acquired as part of the merger . a portion of the purchase price is allocated to tangible assets and intangibles , including : · the fair value of the building on an as-if-vacant basis and to land determined either by comparable market data , real estate tax assessments , independent appraisals or other relevant data ; · above-market and below-market in-place lease values for acquired properties are based on the present value ( using an interest rate which reflects the risks associated with the leases acquired ) of the difference between ( i ) the contractual amounts to be paid pursuant to the in-place leases and ( ii ) management 's estimate of fair market lease rates for the corresponding in-place leases , measured over the remaining non-cancelable term of the leases . any below-market renewal options are also considered in the in-place lease values . the capitalized above-market and below-market lease values are amortized as a reduction of or addition to rental income over the remaining non-cancelable terms of the respective leases . should a tenant vacate , terminate its lease , or otherwise notify us of its intent to do so , the unamortized portion of the lease intangibles would be charged or credited to income ; and · the value of leases acquired . we utilize independent sources for our estimates to determine the respective in-place lease values . our estimates of value are made using methods similar to those used by independent appraisers . factors we consider in our analysis include an estimate of costs to execute similar leases including tenant improvements , leasing commissions and foregone costs and rent received during the estimated lease-up period as if the space was vacant . the value of in-place leases is amortized to expense over the remaining initial terms of the respective leases . · the fair value of any assumed financing that is determined to be above or below market terms . we utilize third party and independent sources for our estimates to determine the respective fair value of each mortgage payable . the fair market value of each mortgage payable is amortized to interest expense over the remaining initial terms of the respective loan . we also consider whether a portion of the purchase price should be allocated to in-place leases that have a related customer relationship intangible value . characteristics we consider in allocating these values include the nature and extent of existing business relationships with the tenant , growth prospects for developing new business with the tenant , the tenant 's credit quality , and expectations of lease renewals , among other factors . to date , a tenant relationship has not been developed that is considered to have a current intangible value . certain properties we acquired from the merger included earnout components to the purchase price , meaning the previous owner did not pay a portion of the purchase price of the property at closing , although they owned the entire property . we are not obligated to pay the contingent portion of the purchase prices unless space which was vacant at the time of acquisition is later leased by the seller within the time limits and parameters set forth in the acquisition agreements . the earnout payments are based on a predetermined formula applied to rental income received . the earnout agreements have an obligation period remaining of one year or less as of december 31 , 2014. if at the end of the time period certain space has not been leased , occupied and rent producing , we will have no further obligation to pay additional purchase price consideration and will retain ownership of that entire property . based on our best estimate , we have recorded a liability for the potential future earnout payments using estimated fair value measurements at the end of the period which include the lease-up periods , market rents and probability of occupancy . we have recorded this earnout amount as additional purchase price of the related properties and as a liability included in deferred revenue and intangibles , net and other liabilities on the accompanying consolidated balance sheets .
| results of operations at december 31 , 2014 , we owned interests in 123 properties ( consisting of 118 retail operating properties , three retail redevelopment properties , and one office operating property and an associated parking garage ) . also , as of december 31 , 2014 , we had an interest in four retail development projects that were under construction . at december 31 , 2013 , we owned interests in 72 properties ( consisting of 66 retail operating properties , 4 retail redevelopment properties , and one office operating property and an associated parking garage ) . also , as of december 31 , 2013 , we had an interest in two development projects that were under construction and one development project that has not yet commenced construction . at december 31 , 2012 , we owned interests in 60 properties ( consisting of 54 retail operating properties , 4 retail redevelopment properties , and one office operating property and an associated parking garage ) . also , as of december 31 , 2012 , we had an interest in three development projects that were under construction and three development projects that had not yet commenced construction .
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note 15 – redeemable convertible preferred stock and redeemable common stock in august 2008 , the company sold 427,985 shares of redeemable convertible preferred stock . upon completion of its ipo in february 2012 , these shares were converted to common stock story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward- looking statements as a result of various factors , including those set forth under “ risk factors ” and elsewhere in this annual report on form 10-k. overview we are a leading online and technology-enabled manufacturer of quick-turn cnc-machined and injection-molded custom parts for prototyping and short-run production . we provide “ real parts , really fast ” to product developers worldwide , who are under increasing pressure to bring their finished products to market faster than their competition . we believe low-volume manufacturing has historically been an underserved market due to the inefficiencies inherent in the quotation , equipment set-up and non-recurring engineering processes required to produce custom parts . our proprietary technology eliminates most of the time-consuming and expensive skilled labor conventionally required to quote and manufacture parts in low volumes , and our customers conduct nearly all of their business with us over the internet . we target our services to the millions of product developers who use 3d cad software to design products across a diverse range of end-markets . our primary manufacturing services currently include firstcut , which is our cnc machining service , and protomold , which is our injection molding service . through december 31 , 2013 , we have received over 1,400,000 uploaded part designs , sent over 1,200,000 part quotations and shipped over 300,000 unique parts to approximately 36,000 product developers representing over 16,000 customer companies across a wide range of industries . we have experienced significant growth since our inception . since we first introduced our protomold injection molding service in 1999 , we have steadily expanded the size and geometric complexity of the injection-molded parts we are able to manufacture , and we continue to extend the diversity of materials we are able to support . similarly , since first introducing our firstcut cnc machining service in 2007 , we have expanded the range of part sizes , design geometries and materials we can support . we are also continually seeking to enhance other aspects of our technology and manufacturing processes , including our interactive web-based and automated user interface and quoting system . we intend to continue to invest significantly in enhancing our technology and manufacturing processes and expanding the range of our existing capabilities with the aim of meeting the needs of a broader set of product developers . as a result of the factors described above , many of our customers tend to return to proto labs to meet their ongoing needs , with approximately 86 % , 84 % and 81 % of our revenue in 2013 , 2012 and 2011 , respectively , derived from existing customers who had placed orders with us in prior years . we have established our operations in the united states , europe and japan , which we believe are three of the largest geographic markets where product developers are located . we entered the european market in 2005 and launched operations in japan in late 2009. as of december 31 , 2013 , we had sold products into more than 50 countries . our revenue outside of the united states accounted for approximately 27 % , 25 % and 26 % of our consolidated revenue in the years ended december 31 , 2013 , 2012 and 2011 , respectively . we intend to continue to expand our international sales efforts and believe opportunities exist to serve the needs of product developers in select new geographic regions . we have grown our total revenue from $ 43.8 million in 2009 to $ 163.1 million in 2013. during this period , our operating expenses increased from $ 17.4 million in 2009 to $ 50.4 million in 2013. we have grown our income from operations from $ 7.9 million in 2009 to $ 51.3 million in 2013. our recent growth in revenue and income from operations has been accompanied by increased operating expenses , with the two most significant components being marketing and sales and general and administrative expenses . we expect to increasingly invest in our operations to support anticipated future growth as discussed more fully below . in addition , we believe that a number of trends affecting our industry have affected our results of operations and may continue to do so . for example , we believe that many of our target product developer customers have increasing e-commerce expectations , are facing increased pressure to accelerate the time to market for their products and continue to migrate from using 2d cad to using 3d cad for their design needs . we believe we continue to be well positioned to benefit from these trends , given our proprietary technology that enables us to automate and integrate the majority of activities involved in procuring custom low-volume parts , starting with our elegant web interface through which a product developer submits a 3d cad part design . while our business may be positively affected by these trends , our results may also be favorably or unfavorably impacted by other trends that affect product developer orders for custom parts in low volumes , including , among others , changes in product developer preferences or needs , developments in our industry and among our competitors and factors impacting new product development volume such as economic conditions . for a more complete discussion of the risks facing our business , see “ risk factors. story_separator_special_tag general and administrative expense consists primarily of employee compensation , benefits , stock-based compensation , professional service fees related to accounting , tax and legal and other related overhead . we expect general and administrative expense to increase on an absolute basis and as a percentage of revenue as we continue to grow and expand our operations and develop the infrastructure necessary to operate as a public company . these expenses will include increased audit and legal fees , costs of compliance with securities and other regulations and implementation costs for compliance with the provisions of the sarbanes-oxley act . other income ( expense ) , net other income ( expense ) , net primarily consists of foreign currency-related gains and losses , interest income on cash balances and investments , and interest expense on borrowings . our foreign currency-related gains and losses will vary depending upon movements in underlying exchange rates . our interest income will vary each reporting period depending on our average cash balances during the period , composition of our marketable security portfolio and the current level of interest rates . our interest expense will vary based on borrowings and interest rates . provision for income taxes provision for income taxes is comprised of federal , state , local and foreign taxes based on pre-tax income . we expect income taxes to increase as our taxable income increases and our effective tax rate to remain relatively constant . 39 story_separator_special_tag serif ; font-size : 10pt '' > gross profit and gross margin . gross profit increased from $ 59.6 million , or 60.3 % of revenues , in 2011 to $ 76.1 million , or 60.4 % of revenues , in 2012 primarily due to revenue increasing faster than cost of revenue as discussed above . gross margin remained consistent primarily as a result of increased productivity offset by the cost of additional capacity added during the year , primarily additional manufacturing space and facilities . operating expenses , other expense , net and provision for income taxes marketing and sales . marketing and sales expense increased $ 2.3 million , or 14.9 % , for 2012 compared to 2011 due to an increase in headcount resulting in personnel and related cost increases of $ 2.1 million and marketing program cost increases of $ 0.2 million . the marginal increase in marketing program costs is the result of our focus and concentration on funding those programs which have proven to be the most effective in growing our business . marketing and sales expense as a percentage of revenue decreased to 14.4 % for 2012 from 15.9 % in 2011 , primarily due to the fixed nature of certain marketing and sales costs as well as focus on effective marketing spending as previously discussed . research and development . our research and development expense increased $ 3.9 million , or 75.0 % , for 2012 compared to 2011 due to an increase in headcount resulting in personnel and related cost increases of $ 1.0 million , operating cost increases of $ 0.8 million and professional services of $ 2.1 million for outside development services . general and administrative . our general and administrative expense increased $ 2.2 million , or 18.6 % , for 2012 compared to 2011 due to stock-based compensation increases of $ 1.2 million , facility and administrative cost increases of $ 0.2 million and professional service cost increases of $ 0.8 million for outside legal and accounting services . these professional service cost increases are connected to our becoming a public company during 2012. other income ( expense ) , net . other income ( expense ) , net increased $ 0.1 million for 2012 compared with 2011 due to changes in foreign currency rates . provision for income taxes . our income tax provision increased $ 2.2 million for 2012 compared to 2011 due an increase of taxable income . our effective tax rate decreased to 31.3 % in 2012 from 32.8 % in 2011 due primarily to the mix of revenue earned in domestic and foreign tax jurisdictions and an increase in manufacturing activity that qualified for the domestic manufacturing deduction in 2012 . 43 selected quarterly results of operations data the following tables set forth selected unaudited quarterly results of operations data for 2013 and 2012 as well as the percentage that each line item represents of total revenue . this unaudited quarterly information has been prepared on the same basis as our annual audited consolidated financial statements appearing elsewhere in this annual report on form 10-k and includes all adjustments , consisting only of normal recurring adjustments , that we consider necessary to present fairly the financial information for the fiscal quarters presented . the quarterly data should be read in conjunction with our selected financial data and consolidated financial statements and the related notes appearing elsewhere in this annual report on form 10-k. operating results for any quarter are not necessarily indicative of results for a full-year period , and the historical results presented below are not necessarily indicative of the results to be expected in any future period . replace_table_token_13_th replace_table_token_14_th 44 liquidity and capital resources cash flows the following table summarizes our cash flows for the years ended december 31 , 2013 , 2012 and 2011 : replace_table_token_15_th sources of liquidity historically , we have financed our operations and capital expenditures primarily through cash flow from operations and , to a lesser extent , lease financing and the use of bank loans . in february 2012 , we completed the initial public offering of our common stock , which provided us with $ 71.5 million of cash , net of underwriting discounts and commissions and offering expenses payable by us . in november 2012 , we completed a follow-on offering of our common stock , which provided us with $ 2.5 million of cash , net of underwriting discounts and commissions and offering expenses payable by us .
| results of operations the following table sets forth a summary of our results of operations and the related changes for the periods indicated . the results below are not necessarily indicative of the results for future periods . replace_table_token_7_th * percentage change not meaningful stock-based compensation expense included in the statements of comprehensive income data above is as follows : replace_table_token_8_th comparison of years ended december 31 , 2013 and 2012 revenue revenue and the related changes for 2013 and 2012 were as follows : replace_table_token_9_th 40 revenue by geographic region , based on the billing location of the end customer , is summarized as follows : replace_table_token_10_th our revenue increased $ 37.1 million , or 29.5 % , for 2013 compared with 2012. this revenue growth was driven by a 26.4 % increase in united states revenue , a 38.9 % increase in international revenue , a 27.3 % increase in protomold revenue and a 34.9 % increase in firstcut revenue , in each case for 2013 compared with 2012. our revenue growth in 2013 was the result of increased volume and spending of the product developers we served . during 2013 , we served approximately 16,120 unique product developers , an increase of 20 % over 2012. average revenue per product developer also increased 8 % during 2013 as compared to 2012. our revenue increases were primarily driven by increases in sales personnel and marketing activities . our sales personnel focus on gaining new customer accounts and expanding the depth and breadth into existing customer accounts . our marketing personnel focus on marketing activities that have proven to result in the greatest number of customer leads to support sales activity . international revenue was negatively impacted by $ 1.7 million in 2013 compared to 2012 due to strengthening of the united states dollar relative to certain foreign currencies .
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dependence on single source and other third party suppliers the company uses a significant quantity of raw materials that are highly dependent story_separator_special_tag unless otherwise indicated or required by the context , as used in this annual report on form 10-k , the terms “ we , ” “ our ” and “ us ” refer to gencorp inc. and all of its subsidiaries that are consolidated in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the following discussion should be read in conjunction with the other sections of this report , including the consolidated financial statements and notes thereto appearing in item 8. consolidated financial statements and supplementary data of this report , the risk factors appearing in item 1a . risk factors of this report , and the disclaimer regarding forward-looking statements appearing at the beginning of item 1. business of this report . historical results set forth in item 6. selected financial data and item 8. consolidated financial statements and supplementary data of this report should not be taken as indicative of our future operations . overview we are a manufacturer of aerospace and defense products and systems with a real estate segment that includes activities related to the re-zoning , entitlement , sale , and leasing of our excess real estate assets . we develop and manufacture propulsion systems for defense and space applications , and armaments for precision tactical and long-range weapon systems applications . our continuing operations are organized into two segments : aerospace and defense — includes the operations of our wholly-owned subsidiary aerojet rocketdyne , a leading technology-based designer , developer and manufacturer of aerospace and defense products and systems for the u.s. government , including the dod , nasa , major aerospace and defense prime contractors as well as portions of the commercial sector . aerojet rocketdyne is a world-recognized engineering and manufacturing company that specializes in the development and production of propulsion systems for defense and space applications , armament systems for precision tactical systems and munitions , and is considered a domestic market leader in launch propulsion , in-space propulsion , missile defense propulsion , tactical missile propulsion and hypersonic propulsion systems . real estate — includes the activities of our wholly-owned subsidiary easton development company , llc related to the re-zoning , entitlement , sale , and leasing of our excess real estate assets . we own approximately 12,000 acres of land adjacent to u.s. highway 50 between rancho cordova and folsom , california east of sacramento . we are currently in the process of seeking zoning changes and other governmental approvals on a portion of the sacramento land to optimize its value . in addition , we are currently in the process of completing certain infrastructure improvements to the sacramento land to reduce the time a developer would have to hold the sacramento land before development could start . a summary of the significant financial highlights for fiscal 2014 which management uses to evaluate our operating performance and financial condition is presented below . net sales for fiscal 2014 totaled $ 1,597.4 million compared to $ 1,383.1 million for fiscal 2013. fiscal 2014 and 2013 results include 12 months and 5 1 / 2 months , respectively , of the rocketdyne business operating results ( see below ) . net loss for fiscal 2014 was $ ( 53.0 ) million , or $ ( 0.92 ) loss per share , compared to net income of $ 167.9 million , or $ 2.11 diluted income per share , for fiscal 2013. the net loss for fiscal 2014 included pre-tax cost growth of $ 23.6 million on the antares aj-26 program and a pre-tax charge of $ 60.6 million related to the repurchase of $ 59.6 million of principal of our 4 1 / 16 % debentures . the net income for fiscal 2013 included a $ 193.9 million income tax benefit primarily associated with the release of deferred tax asset valuation allowance reserves . adjusted ebitdap ( non-gaap measure * ) for fiscal 2014 was $ 174.2 million , or 10.9 % of net sales , compared to $ 155.6 million , or 11.3 % of net sales , for fiscal 2013. segment performance ( non-gaap measure * ) before environmental remediation provision adjustments , retirement benefit expense , and unusual items was $ 145.5 million for fiscal 2014 , compared to $ 151.4 million for fiscal 2013. cash provided by operating activities in fiscal 2014 totaled $ 150.4 million , compared to $ 77.6 million in fiscal 2013. the cash generated from operating activities in fiscal 2014 included an increase of $ 94.1 million cash advances on long-term contracts . free cash flow ( non-gaap measure * ) in fiscal 2014 totaled $ 107.0 million , compared to $ 14.4 million in fiscal 2013. as of november 30 , 2014 , we had $ 2.2 billion of funded backlog compared to $ 1.7 billion as of november 30 , 2013 . as of november 30 , 2014 , we had $ 516.3 million in net debt ( non-gaap measure * ) compared to $ 501.6 million as of november 30 , 2013 . 35 _ * we provide non-gaap measures as a supplement to financial results based on gaap . a reconciliation of the non-gaap measures to the most directly comparable gaap measures is presented later in the management 's discussion and analysis under the heading “ operating segment information ” and “ use of non-gaap financial measures. ” our fiscal year ends on november 30 of each year . the fiscal year of our subsidiary , aerojet rocketdyne , ends on the last saturday of november . as a result of the 2013 calendar , aerojet rocketdyne had 14 weeks of operations in the first quarter of fiscal 2013 compared to 13 weeks of operations in the first quarter of fiscal 2014. the additional week of operations in the first quarter of fiscal 2013 accounted for $ 27.8 million in additional net sales . story_separator_special_tag sales to the u.s. government and its agencies , including sales to our significant customers discussed above , were as follows ( dollars in millions ) : replace_table_token_13_th the standard missile program , which is comprised of several contracts and is included in u.s. government sales , represented 12 % , 22 % , and 25 % of net sales for fiscal 2014 , 2013 , and 2012 , respectively . in addition , the thaad program , which is comprised of several contracts and is included in u.s. government sales , represented 12 % , 4 % , and 5 % of net sales for fiscal 2014 , 2013 , and 2012 , respectively . industry update our primary aerospace and defense customers include the dod and its agencies , nasa , and the prime contractors that supply products to these customers . we are seeing more opportunities for commercial launch and in-space business . in addition , sales to our aerospace and defense customers that provide products to international customers continue to grow . however , we continue to rely on particular levels of u.s. government spending on propulsion systems for defense , space and armament systems , precision tactical weapon systems and munitions applications , and our backlog depends , in large part , on continued funding by the u.s. government for the programs in which we are involved . these funding levels are not generally correlated with any specific economic cycle , but rather follow the cycle of general public policy and political support for this type of funding . moreover , although our contracts often contemplate that our services will be performed over a period of several years , the u.s. congress must appropriate funds for a given program and the u.s. president must sign government budget legislation each gfy and may significantly increase , decrease or eliminate , funding for a program . a decrease in dod and or nasa expenditures , the elimination or curtailment of a material program in which we are or hope to be involved , or changes in payment patterns of our customers as a result of changes in u.s. government outlays , could have a material adverse effect on our operating results , financial condition , and or cash flows . 37 the bipartisan budget act of 2013 set overall discretionary spending levels for gfy 2014 and 2015 and eased sequestration spending cuts to the dod and other federal agencies ( e.g. , nasa ) for gfy 2014 and 2015 , paving the way for eventual agreements on gfy 2014 and 2015 appropriations for all federal agencies . for gfy 2015 , congress approved a $ 1.0 trillion “ omnibus ” appropriations bill , averting a u.s. government shutdown and providing a sense of stability for industry . the omnibus legislation contains 11 full year appropriations bills - including defense and commerce , justice , science ( that includes nasa funding ) - and a shorter-term cr for the department of homeland security . the defense portion of the bill provides $ 490.2 billion in discretionary funding for gfy 2015 , which is $ 3.3 billion above the gfy 2014 amount , and nearly equal to the president 's budget request for gfy 2015. in addition , the bill includes $ 64.0 billion in overseas contingency operations for the ongoing war efforts abroad . the nasa portion of the bill includes a top line of $ 18.0 billion , which is $ 0.5 billion above the president 's budget request for gfy 2015 and $ 0.4 billion above the gfy 2014 appropriated amount . without congressional action in 2015 to change or modify the bipartisan budget act of 2013 , sequestration will return in january 2016. despite overall u.s. government budget pressures , we believe we are well-positioned to benefit from funding in dod and nasa priority areas . this view reflects the dod 's strategic guidance report released in january 2012 , and the recently released 2014 qdr which affirms support for many of our core programs and points toward continued dod investment in : access to space — in order to ensure access to this highly congested and contested “ global commons ” ; missile defense — in order to protect the homeland , counter weapons of mass destruction and enhance space-based capabilities ; and power projection by tactical missile systems . the qdr explicitly states missile defense , space , nuclear deterrence , and precision strike as key capabilities for the dod to preserve . the nasa authorization act has again identified the sls program as one of its top priorities in the nasa gfy 2015 budget . the sls program also has enjoyed wide , bipartisan support in both chambers of congress . we maintain a strong relationship with nasa and our propulsion systems have been powering nasa launch vehicles and spacecraft since the inception of the u.s. space program . our booster and upper stage propulsion systems are currently baselined on the new sls vehicle and both upper stage and booster engines are in development for future sls variants . due to the retirement of the space shuttle fleet , u.s. astronauts are now dependent on russian soyuz flights for access to and from the iss for the better part of this decade . nasa has been working to re-establish u.s. manned space capability as soon as possible through development of the commercial cargo and crew iss resupply capability and the heavy lift sls designed for manned deep space exploration . in both instances , we have significant propulsion content . the competitive dynamics of our multi-faceted marketplace vary by product sector and customer and see many of the same influences felt by the larger aerospace and defense sector . the large majority of products we manufacture are highly complex , technically sophisticated and extremely hazardous to build , demanding rigorous manufacturing procedures and highly specialized manufacturing equipment . these factors , coupled with the very high cost to establish the infrastructure required to meet these needs , pose substantial barriers to entry .
| results of operations replace_table_token_15_th net sales : replace_table_token_16_th * primary reason for change . the increase in net sales was primarily due to an increase of $ 360.0 million of net sales from the acquired rocketdyne business . fiscal 2014 and 2013 results include 12 months and 5 1 / 2 months , respectively , of the acquired rocketdyne business . the increase in net sales also included increased deliveries on the atlas v , thaad , and orion programs totaling $ 71.9 million . the increase in net sales was partially offset by ( i ) a decrease of $ 113.9 million in the various standard missile contracts primarily from the transitioning of the standard missile-3 block ib contract from development activities to low-rate initial production , decreased development activities for the tdacs for the standard missile-3 block iia contract , and the cessation of deliveries on the standard missile-1 regrain contract in fiscal 2014 as a result of contract completion ; ( ii ) an additional week of operations in the first quarter of fiscal 2013 resulting in $ 27.8 million in net sales ; ( iii ) a decrease of $ 21.7 million as a result of the completion of the t3 iia and iib contracts as the program enters the next development phase ; ( iv ) a decrease of $ 26.4 million from lower deliveries and changes in the estimated measurement of progress toward completion on the antares program ; and ( v ) a decrease of $ 24.6 million as a result of lower deliveries on the guidance enhanced missile tbm ( `` gem-t '' ) program . see net sales information below : 40 replace_table_token_17_th ( 1 ) includes net sales beginning june 14 , 2013 from the rocketdyne business ( acquisition date ) . * * primary reason for change .
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therefore , the company 's gross and net reserve for losses and loss adjustment expenses at december 31 , 2016 are both $ 8,702,000 as recorded on the story_separator_special_tag the following discussion and analysis is intended to help the reader understand our business , financial condition , results of operations , liquidity and capital resources . you should read this discussion in conjunction with our consolidated financial statements and the related notes contained elsewhere in this annual report on form 10-k for the fiscal year ended december 31 , 2016. this discussion contains forward-looking statements that are not historical facts , including statements about our beliefs and expectations . these statements are based upon current plans , estimates and projections . our actual results may differ materially from those projected in these forward-looking statements as a result of various factors . see “ forward looking statements ” appearing at the beginning of this annual report on form 10-k and item 1a , “ risk factors . ” general the following is a discussion and analysis of our results of operations for the years ended december 31 , 2016 and 2015 and our financial condition as of december 31 , 2016 and 2015. the following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. references to “ we , ” “ us , ” “ our , ” “ our company , ” or “ the company ” refer to oxbridge re holdings limited and its wholly-owned subsidiary , oxbridge reinsurance limited , unless the context dictates otherwise . overview and trends we are a cayman islands specialty property and casualty reinsurer that provides reinsurance solutions through our subsidiary , oxbridge reinsurance limited . we focus on underwriting fully-collateralized reinsurance contracts primarily for property and casualty insurance companies in the gulf coast region of the united states , with an emphasis on florida . we specialize in underwriting medium frequency , high severity risks , where we believe sufficient data exists to analyze effectively the risk/return profile of reinsurance contracts . we underwrite reinsurance contracts on a selective and opportunistic basis as opportunities arise based on our goal of achieving favorable long-term returns on equity for our shareholders . our goal is to achieve long-term growth in book value per share by writing business that generates attractive underwriting profits relative to the risk we bear . unlike other insurance and reinsurance companies , we do not intend to pursue an aggressive investment strategy and instead will focus our business on underwriting profits rather than investment profits . however , we intend to complement our underwriting profits with investment profits on an opportunistic basis . our primary business focus is on fully collateralized reinsurance contracts for property catastrophes , primarily in the gulf coast region of the united states , with an emphasis on florida . within that market and risk category , we attempt to select the most economically attractive opportunities across a variety of property and casualty insurers . as our capital base grows , however , we expect that we will consider further growth opportunities in other geographic areas and risk categories . our level of profitability is primarily determined by how adequately our premiums assumed and investment income cover our costs and expenses , which consist primarily of acquisition costs and other underwriting expenses , claim payments and general and administrative expenses . one factor leading to variation in our operational results is the timing and magnitude of any follow-on offerings we undertake ( if any ) , as we are able to deploy new capital to collateralize new reinsurance treaties and consequently , earn additional premium revenue . in addition , our results of operations may be seasonal in that hurricanes and other tropical storms typically occur during the period from june 1 through november 30. further , our results of operations may be subject to significant variations due to factors affecting the property and casualty insurance industry in general , which include competition , legislation , regulation , general economic conditions , judicial trends , and fluctuations in interest rates and other changes in the investment environment . 32 because we employ an opportunistic underwriting and investment philosophy , period-to-period comparisons of our underwriting results may not be meaningful . in addition , our historical investment results may not necessarily be indicative of future performance . due to the nature of our reinsurance and investment strategies , our operating results will likely fluctuate from period to period . due to influx of new risk capital from alternative capital market participants such as hedge funds and pension funds , we believe that the reinsurance industry is currently over-capitalized , and will continue in this trend for the foreseeable future . the over-capitalization of the market is not uniform as there are a number of insurers and reinsurers that have suffered and continue to suffer from capacity issues . we continue to assess the opportunities that may be available to us with insurance and reinsurance companies with this profile . if the reinsurance market continues to soften , our strategy is to reduce premium writings rather than accept mispriced risk , and conserve our capital for a more opportune environment . significant rate increases could occur if financial and credit markets experience adverse shocks that result in the loss of capital of insurers and reinsurers , or if there are major catastrophic events , especially in north america . the persistent low interest rate environment has reduced the earnings of many insurance and reinsurance companies and we believe that the continuation of low interest rates , coupled with the reduction of prior years ' reserve redundancies , could cause the industry to adopt overall higher pricing . principal revenue and expense items revenues we derive our revenues from two principal sources : ● premiums assumed from reinsurance on property and casualty business ; and ● income from investments . story_separator_special_tag our operations are conducted through our sole reinsurance subsidiary , oxbridge reinsurance limited , which underwrites risks associated with our property and casualty reinsurance programs . we have minimal continuing cash needs at the holding company level , with such expenses principally being related to the payment of administrative expenses and shareholder dividends . there are restrictions on oxbridge reinsurance limited 's ability to pay dividends which are described in more detail below . sources and uses of funds our sources of funds primarily consist of premium receipts ( net of brokerage fees and federal excise taxes , where applicable ) and investment income , including interest , dividends and realized gains . we use cash to pay losses and loss adjustment expenses , other underwriting expenses , dividends , and general and administrative expenses . substantially all of our surplus funds , net of funds required for cash liquidity purposes , are invested in accordance with our investment guidelines . our investment portfolio is primarily comprised of cash and highly liquid securities , which can be liquidated , if necessary , to meet current liabilities . we believe that we have sufficient flexibility to liquidate any long-term securities that we own in a rising market to generate liquidity . as of december 31 , 2016 , we believe we had sufficient cash flows from operations to meet our liquidity requirements . we expect that our operational needs for liquidity will be met by cash , investment income and funds generated from underwriting activities . we have no plans to issue debt and expect to fund our operations for the foreseeable future from operating cash flows , as well as from potential future equity offerings . however , we can not provide assurances that in the future we will not incur indebtedness to implement our business strategy , pay claims or make acquisitions . although oxbridge re holdings limited is not subject to any significant legal prohibitions on the payment of dividends , oxbridge reinsurance limited is subject to cayman islands regulatory constraints that affect its ability to pay dividends to us and include a minimum net worth requirement . currently , the minimum net worth requirement for oxbridge reinsurance limited is $ 500. as of december 31 , 2016 , oxbridge reinsurance limited exceeded the minimum required . by law , oxbridge reinsurance limited is restricted from paying a dividend if such a dividend would cause its net worth to drop to less than the required minimum . cash flows our cash flows from operating , investing and financing activities for the years ended december 31 , 2016 and 2015 are summarized below . cash flows for the year ended december 31 , 2016 ( in thousands ) net cash provided by operating activities for the year ended december 31 , 2016 totaled $ 416 , which consisted primarily of cash received from net written premiums less cash disbursed for operating expenses . net cash provided by investing activities of $ 6,869 was primarily due to the net sales of available for sale securities and collateral withdrawals from trust accounts . net cash used in financing activities totaled $ 3,627 representing net cash dividend payments and cash used to repurchase ordinary shares under the company 's share repurchase plan . 38 cash flows for the year ended december 31 , 2015 ( in thousands ) net cash provided by operating activities for the year ended december 31 , 2015 totaled $ 8,126 , which consisted primarily of cash received from net written premiums less cash disbursed for operating expenses . net cash used in investing activities of $ 1,951 was primarily due to the net sales of available for sale securities and increased collateral deposited in trust accounts . net cash used in financing activities totaled $ 2,908 representing cash dividend payments . share repurchase program on may 12 , 2016 , the board of directors of oxbridge re holdings limited ( the “ company ” ) authorized a share repurchase program ( the “ share repurchase program ” ) , pursuant to which the company may , from time to time , purchase shares of its ordinary stock for an aggregate repurchase price not to exceed $ 2 million . the plan expires on december 31 , 2017. share repurchases may be executed through various means , including , without limitation , open market transactions , privately negotiated transactions or tender offers . the repurchases will be funded from cash on hand or other capital markets sources . the stock repurchase program may be suspended or discontinued at any time without prior notice . the company has adopted a rule 10b5-1 share repurchase plan under the securities exchange act of 1934 ( the “ plan ” ) in connection with the share repurchase program . the plan allows the company to repurchase its shares at times when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods . because repurchases under the plan are subject to certain pricing parameters , there is no guarantee as to the exact number of shares that will be repurchased under the plan or that there will be any repurchases pursuant to the plan . subject to applicable regulations , the company may elect to amend or cancel the plan at its discretion . at december 31 , 2016 , there was approximately $ 1,258,000 available under the plan . off-balance sheet arrangements as of december 31 , 2016 , we had no off-balance sheet arrangements as defined in item 303 ( a ) ( 4 ) of regulation s-k. exposure to catastrophes as with other reinsurers , our operating results and financial condition could be adversely affected by volatile and unpredictable natural and man-made disasters , such as hurricanes , windstorms , earthquakes , floods , fires , riots and explosions .
| measurement of results we use various measures to analyze the growth and profitability of business operations . for our reinsurance business , we measure growth in terms of premiums assumed and we measure underwriting profitability by examining our loss , underwriting expense and combined ratios . we analyze and measure profitability in terms of net income and return on average equity . premiums assumed . we use gross premiums assumed to measure our sales of reinsurance products . gross premiums assumed also correlates to our ability to generate net premiums earned . see also the analysis above relating to the growth in premiums assumed . loss ratio . the loss ratio is the ratio of losses and loss adjustment expenses incurred to premiums earned and measures the underwriting profitability of our reinsurance business . the loss ratio increased from 0 % for the year ended december 31 , 2015 to 82 % for the year ended december 31 , 2016. the increase is wholly due to effect of weather-events during the year ended december 31 , 2016 that affected our book of business . acquisition cost ratio . the acquisition cost ratio is the ratio of policy acquisition costs and other underwriting expenses to net premiums earned . the acquisition cost ratio measures our operational efficiency in producing , underwriting and administering our reinsurance business . the acquisition cost ratio decreased from 5.1 % for the year ended december 31 , 2015 to 1.6 % for the year ended december 31 , 2016. the decrease is due to the overall lower weighted-average acquisition costs on reinsurance contracts in force during the year ended december 31 , 2016 , compared with year ended december 31 , 2015 , as well as the impact of an adjustment to net premiums earned due to the derecognition of loss experience refund payable mentioned above . 36 expense ratio .
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these advances will increase the recorded investment of the pci loan and will be accounted for with the other pci loans . acquired performing loans are accounted for under asc 310-20 , receivables – nonrefundable fees and other costs . the difference between the fair value and unpaid principal balance of the loan at acquisition date ( premium or discount ) is amortized or accreted into interest income over the life of the loans . if the acquired performing loan has revolving privileges , it is accounted for using the straight line method . story_separator_special_tag the following discussion and analysis provides information about the major components of the results of operations and financial condition , liquidity , and capital resources of the company and its subsidiaries . this discussion and analysis should be read in conjunction with the “ consolidated financial statements ” and the “ notes to the consolidated financial statements ” presented in item 8 “ financial statements and supplementary data ” contained in this form 10-k. critical accounting policies general the accounting and reporting policies of the company and its subsidiaries are in accordance with gaap and conform to general practices within the banking industry . the company 's financial position and results of operations are affected by management 's application of accounting policies , including estimates , assumptions , and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues , expenses , and related disclosures . different assumptions in the application of these policies could result in material changes in the company 's consolidated financial position and or results of operations . the more critical accounting and reporting policies include the company 's accounting for the allowance for loan losses , mergers and acquisitions , and goodwill and intangible assets . the company 's accounting policies are fundamental to understanding the company 's consolidated financial position and consolidated results of operations . accordingly , the company 's significant accounting policies are discussed in detail in note 1 “ summary of significant accounting policies ” in the “ notes to the consolidated financial statements ” contained in item 8 of this form 10-k. the following is a summary of the company 's critical accounting policies that are highly dependent on estimates , assumptions , and judgments . allowance for loan losses the provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance that management considers adequate to absorb potential losses in the portfolio . loans are charged against the allowance when management believes the collectability of the principal is unlikely . recoveries of amounts previously charged-off are credited to the allowance . management 's determination of the adequacy of the allowance is based on an evaluation of the composition of the loan portfolio , the value and adequacy of collateral , current economic conditions , historical loan loss experience , and other risk factors . management believes that the allowance for loan losses is adequate . while management uses available information to recognize losses on loans , future additions to the allowance may be necessary based on changes in economic conditions , particularly those affecting real estate values . in addition , regulatory agencies , as an integral part of their examination process , periodically review the company 's allowance for loan losses . such agencies may require the company to make adjustments to the allowance based on their judgments about information available to them at the time of their examination . the company performs regular credit reviews of the loan portfolio to review the credit quality and adherence to its underwriting standards . the credit reviews consist of reviews by its loan review group and reviews performed by an independent third party . upon origination , each commercial loan is assigned a risk rating ranging from one to nine , with loans closer to one having less risk . this risk rating scale is the company 's primary credit quality indicator . consumer loans are generally not risk rated ; the primary credit quality indicator for this portfolio segment is delinquency status . the company has various committees that review and ensure that the allowance for loan losses methodology is in accordance with gaap and loss factors used appropriately reflect the risk characteristics of the loan portfolio . the company 's all consists of specific , general , and unallocated components . - 26 - specific reserve component - the specific reserve component relates to impaired loans . a loan is considered impaired when , based on current information and events , it is probable that the company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . upon being identified as impaired , for loans not considered to be collateral dependent , an allowance is established when the discounted cash flows of the impaired loan are lower than the carrying value of that loan . nonaccrual loans under $ 100,000 and other impaired loans under $ 500,000 are aggregated based on similar risk characteristics . the level of credit impairment within the pool ( s ) is determined based on historical loss factors for loans with similar risk characteristics , taking into consideration environmental factors specifically related to the underlying pool . the impairment of collateral dependent loans is measured based on the fair value of the underlying collateral ( based on independent appraisals ) , less selling costs , compared to the carrying value of the loan . if the company determines that the value of an impaired collateral dependent loan is less than the recorded investment in the loan , it either recognizes an impairment reserve as a specific component to be provided for in the allowance for loan losses or charges off the deficiency if it is determined that such amount represents a confirmed loss . story_separator_special_tag the company applies payments received on impaired loans to principal and interest based on the contractual terms until they are placed on nonaccrual status . all payments received are then applied to reduce the principal balance and recognition of interest income is terminated . business combinations and acquired loans the company 's merger and acquisition strategy focuses on high-growth areas with strong market demographics and targets organizations that have a comparable corporate culture , strong performance , and good asset quality , among other factors . business combinations are accounted for under asc 805 , business combinations , using the acquisition method of accounting . the acquisition method of accounting requires an acquirer to recognize the assets acquired and the liabilities assumed at the acquisition date measured at their fair values as of that date . to determine the fair values , the company will continue to rely on third party valuations , such as appraisals , or internal valuations based on discounted cash flow analyses or other valuation techniques . under the acquisition method of accounting , the company will identify the acquirer and the closing date and apply applicable recognition principles and conditions . if they are necessary to implement its plan to exit an activity of an acquiree , costs that the company expects , but is not obligated , to incur in the future are not liabilities at the acquisition date , nor are costs to terminate the employment of or relocate an acquiree 's employees . the company does not recognize these costs as part of applying the acquisition method . instead , the company recognizes these costs as expenses in its post-combination financial statements in accordance with other applicable gaap . acquisition-related costs are costs the company incurs to effect a business combination . those costs include advisory , legal , accounting , valuation , and other professional or consulting fees . some other examples of acquisition-related costs to the company include systems conversions , integration planning consultants , and advertising costs . the company will account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received , with one exception . the costs to issue debt or equity securities will be recognized in accordance with other applicable gaap . these acquisition-related costs are included within the company 's consolidated statements of income classified within the noninterest expense caption . loans acquired in a business combination are recorded at fair value on the date of the acquisition . loans acquired with deteriorated credit quality are accounted for in accordance with asc 310-30 , receivables – loans and debt securities acquired with deteriorated credit quality , and are initially measured at fair value , which includes estimated future credit losses expected to be incurred over the life of the loans . loans acquired in business combinations with evidence of credit deterioration are not considered to be impaired unless they deteriorate further subsequent to the acquisition . certain acquired loans , including performing loans and revolving lines of credit ( consumer and commercial ) , are accounted for in accordance with asc 310-20 , receivables – nonrefundable fees and other costs , where the discount is accreted through earnings based on estimated cash flows over the estimate life of the loan . - 28 - goodwill and intangible assets the company follows asc 350 , goodwill and other intangible assets , which prescribes the accounting for goodwill and intangible assets subsequent to initial recognition . goodwill resulting from business combinations prior to january 1 , 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired . goodwill resulting from business combinations after january 1 , 2009 , is generally determined as the excess of the fair value of the consideration transferred , plus the fair value of any noncontrolling interests in the acquiree , over the fair value of the net assets acquired and liabilities assumed as of the acquisition date . goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized , but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed . the company has selected april 30 , 2014 as the date to perform the annual impairment test . intangible assets with definite useful lives are amortized over their estimated useful lives , which range from 4 to 14 years , to their estimated residual values . goodwill is the only intangible asset with an indefinite life on the company 's consolidated balance sheets . long-lived assets , including purchased intangible assets subject to amortization , such as the core deposit intangible asset , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future cash flows , an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset . assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell , and are no longer depreciated . management concluded that no circumstances indicating an impairment of these assets existed as of the balance sheet date . the company performed its annual impairment testing on april 30 and determined that there was no impairment to its goodwill or intangible assets .
| results of operations executive overview · the company reported net income of $ 52.6 million and earnings per share of $ 1.14 for its year ended december 31 , 2014. excluding after-tax acquisition-related costs of $ 13.7 million , operating earnings ( 1 ) for the year were $ 66.3 million and operating earnings per share ( 1 ) was $ 1.44. the annual results represent an increase of $ 29.8 million , or 81.5 % , in operating earnings and a decrease of $ 0.02 per share , or 1.4 % , from 2013 levels . the 2014 financial results include the full-year financial results of stellarone , which the company acquired on january 1 , 2014 . · the company 's community banking segment reported operating earnings of $ 69.8 million for the year ended december 31 , 2014 , an increase of $ 30.6 million from the prior year , and operating earnings per share of $ 1.52 , a decrease of $ 0.05 per share from the prior year . the company 's mortgage segment reported a net loss of $ 3.5 million , an increased loss of $ 839,000 , from a net loss of $ 2.7 million in the prior year . · the company experienced continued improvement in asset quality . nonperforming assets , net charge-offs , and loans past due 90 days or more and still accruing interest as a percentage of total loans outstanding , declined from december 31 , 2013 . · on january 31 , 2014 , the company 's board of directors authorized a share repurchase program to purchase up to $ 65.0 million worth of the company 's common stock . as of december 31 , 2014 , approximately 2.1 million shares of common stock had been repurchased , with approximately $ 12.5 million remaining available under the repurchase program . · the company successfully integrated stellarone , achieving cost savings targets and experiencing lower than expected customer attrition .
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